Which of the following situations is most likely to pose a problem for companies that use return on investment as a measure of a manager's performance? * O O Managers may be encouraged to purchase more operating assets than they otherwise should. O Managers may be discouraged from purchasing operating assets that could improve overall profitabillity. O Managers may be discouraged from reducing their division's costs.

Which of the following situations is most likely to pose a problem for companies that use return on investment as a measure of a manager's performance? * O O Managers may be encouraged to purchase more operating assets than they otherwise should. O Managers may be discouraged from purchasing operating assets that could improve overall profitabillity. O Managers may be discouraged from reducing their division's costs.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter12: Balanced Scorecard And Other Performance Measures

Section: Chapter Questions

Problem 8MC: What should an organization do if performance measures change? A. Make sure that the manager being...

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When a Dupont analysis reveals that a company has much higher than average asset turnover and much lower than average profit margin, what can be concluded about the companys strategy? a. It is a product differentiator. c. It has no strategy. b. It needs to concentrate on improve- d. It is a low-cost provider ing its profit margins.
Which of the following situations is most likely to pose a problem for companies that use return on investment as a measure of a manager’s performance? a. Managers may be encouraged to purchase more operating assets than they otherwise should. b. Managers may be discouraged from purchasing operating assets that could improve overall profitability. c. Managers may be discouraged from reducing their division’s costs. d. Managers may be discouraged from paying off debt in order to reduce costs
Explain and give an example as to how a manager can manipulate the return on investment figure in the short run. Why are these manipulations bad for the company in the long run? Suggest some alternative performance evaluation and compensation schemes.
Which of the following statements regarding responsibility accounting systems is true? O Residual income is best used when evaluating the performance of profit centers rather than investment centers. An advantage of using return on investment to evaluate performance is that it encourages managers to increase both operating assets and operating income. O The use of residual income as a performance measure may lead segment managers to reject investments in projects that would be favorable for the company as a whole. O Residual income is a less effective metric for evaluating performance if there are significant differences in the size of the operating segments. O None of the above statements is true.
Explain with an example why managers find it difficult to adopt a decision alternative even when the relevance cost analysis shows the superiority of this decision alternative to maximize operating income over other decision alternatives. What might the company do to reduce the pressure on management and decrease the ethical conflict?
“A customer-profitability profile highlights those customers a company should drop to improve profitability.” Do you agree? Explain.
Companies have found that offering discounts to customers in return for early payment can be counterproductive in terms of the resulting adverse effect on profitability. This is when the reduction in profitability outweighs any marginal improvements gained from the benefit of a reduction in the working capital requirement. Required: Critically evaluate the methods that can be adopted to manage and achieve the efficient control of inventories and gain the resulting benefits for improving cashflow and ultimately profit in a business.
Criticisms of return on investment as the only performancemeasure include:a. ROI focuses on short-term decisions.b. ROI is focused on only one component of the value chain.c. Managers evaluated based only on ROI are sometimesmotivated not to make an investment that is in the bestinterest of the organization as a whole.d. All of the above.
T. Turnover due to low job satisfaction may be desirable if it facilitates the introduction of new ideas into the firm if downsizing due to attrition reduces the size of the workforce if it frees up positions to allow for promotion from within a, b & c turnover is never desirable; it is a costly behavior to the firm and should be kept to a minimum
What should an organization do if performance measures change? A. Make sure that the manager being evaluated is aware of the measurement change, as this may affect his or her decision-making. B. Make sure that the manager benefits without the corporation also benefitting. C. Make sure that there are significant overriding opportunities for each manager, if the manager is unaware of the change. D. Obtain customer surveys on the change before communicating the change to the manager.
An example of a nonfinancial measure for customer satisfaction is: delivery delay employee turnover number of defects on the production line process yield none of the above could be customer satisfaction measures 2.Measures of the balanced scorecard's financial perspective might include all of the following EXCEPT: operating income customer satisfaction gross profit percentage cost reductions 3. Which of the following is NOT true of the balanced scorecard? Different strategies call for different scorecard measures. Successful implementation requires commitment and leadership from top management. Only objective measures should be used and subjective measures should be avoided. Cause and effect linkages are implied by the balanced scorecard, and even though they may not be precise, can and should evolve over time.
Perverse Effects of Some Performance Measures. There is often more than one way to improve a performance measure. Unfortunately, some of the actions taken by managers to make their performance look better may actually harm the organization. For example, suppose the marketing department is held responsible only for increasing the performance measure “total revenues.” Increases in total revenues may be achieved by working harder and smarter, but they can also usually be achieved by simply cutting prices. The increase in volume from cutting prices almost always results in greater total revenues: however, it does not always lead to greater total profits. Those who design performance measurement systems need to keep in mind that managers who are under pressure to perform may take actions to improve performance measures that have negative consequences elsewhere. Required: For each of the following situations, describe actions managers might take to show improvement in the performance measure…