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Solutions Manual, Chapter 12 41
Problem 12-21 (continued)
2. Students’ answers may differ in some details from this solution.
Applied Pharmaceuticals
Return on
Stockholders’ Equity
Financial
Customer perception of
first-to-market capability
Customer perception of
product quality
Customer
R&D Yield
Defect rates
Internal
Business
Processes
Dollars invested in
engineering technology
Percentage of job
offers accepted
Dollars invested in engineering
training per engineer
Learning
and
Growth
+
+
+
+
–
+
+
+
Problem 12-21 (continued)
Destination Resorts International
Financial
Sales
+
Customer
+
Number of repeat customers
Internal
Business
Processes
+
Room cleanliness
Average time to
resolve customer
complaint
Percentage of
error-free repeat
customer check-ins
+
–
Learning
and
Growth
Employee morale
as shown in
survey
Employee
turnover
+
–
Number of employees
receiving database
training
+
Solutions Manual, Chapter 12 43
Problem 12-21 (continued)
3. The hypotheses underlying the balanced scorecards are indicated by the
arrows in each diagram. Reading from the bottom of each balanced
scorecard, the hypotheses are:
Applied Pharmaceuticals
o If the dollars invested in engineering technology increase, then the
R&D yield will increase.
o If the dollars invested in engineering training per engineer increase,
then the R&D yield will increase.
perception of product quality will increase.
return on stockholders’ equity will increase.
Destination Resort International
o If the employee turnover decreases, then the percentage of error-
o If the number of employees receiving database training increases,
o If employee morale increases, then the percentage of error-free
o If the percentage of error-free repeat customer check-ins increases,
then the number of repeat customers will increase.
the number of repeat customers will increase.
o If the number of repeat customers increases, then sales will increase.
44 Managerial Accounting for Managers, 4th Edition
Problem 12-21 (continued)
Each of these hypotheses is questionable to some degree. For example,
in the case of Applied Pharmaceuticals, R&D yield is not the sole driver
of the customers’ perception of first-to-market capability. More
perception of first-to-market capability would decrease. The fact that
each of the hypotheses mentioned above can be questioned does not
invalid and the balanced scorecard can then be appropriately modified.
Solutions Manual, Chapter 12 45
Problem 12-22 (45 minutes)
The answers below are not the only possible answers. Ingenious people
linked to overall financial goals, “gaming” the system is more difficult.
1. Speed-to-market can be improved by taking on less ambitious projects.
rush to push products out the door, the products will be inadequately
tested and developed.
2. In this case, the ground crews raced from one arriving airplane to
another in an effort to unload luggage from these airplanes as soon as
Another flaw of the CEO’s bonus system is that ground crews would
probably “smooth” their rate of improvement to earn as many monthly
3. In real life, the production manager simply added several weeks to the
delivery cycle time. In other words, instead of promising to deliver an
of orders delivered on time.
46 Managerial Accounting for Managers, 4th Edition
Problem 12-22 (continued)
4. As stated above, ratios can be improved by changing either the
employees than to increase revenues. Of course, eliminating employees
units that has 200 employees, revenues of $10 million, and profits of
$1.2 million.
Before eliminating
the business unit
After eliminating
the business unit
Total revenue ................
$120,000,000
$110,000,000
Total employees ............
1,000
800
Revenue per employee ..
$120,000
$137,500
Total profits ..................
$2,000,000
$800,000
emphasis on any one performance measure.
Learning
and
Growth
Internal
Business
Processes
Customer
Financial
Case 12-23 (60 minutes)
1. Student answers may differ concerning which category—learning and
growth, internal business processes, customers, or financial—a
particular performance measure belongs to.
Total profit
Average age of
accounts receivable
Written-off
accounts receivable
as a percentage of
sales
Customer
satisfaction with
accuracy of charge
account bills
Percentage of
charge account bills
containing errors
Unsold inventory at
end of season as a
percentage of total
cost of sales
Percentage of
suppliers making
just-in-time
deliveries
Percentage of sales
clerks trained to
correctly enter data
on charge account
slips
+
+
+
+
48 Managerial Accounting for Managers, 4th Edition
Case 12-23 (continued)
in a company’s balanced scorecard, it would become unwieldy and focus
would be lost.
2. The results of operations can be exploited for information about the
company’s strategy. Each link in the balanced scorecard should be
If customers in fact do express greater satisfaction with the accuracy of
their charge account bills, but the average age of accounts receivable
strategy.
reexamined.
Solutions Manual, Chapter 12 49
Case 12-23 (continued)
3. a. This evidence is inconsistent with two of the hypotheses underlying
the balanced scorecard. The first of these hypotheses is “If customers
express greater satisfaction with the accuracy of their charge account
bills, then the average age of accounts receivable will improve.” The
charge account bills at all. The problem may be that the procedures
for collecting overdue accounts are not working properly. Or, the
problem may be that the procedures for reviewing credit card
applications let through too many poor credit risks. If so, this would
scorecard should be modified.
b. This evidence is inconsistent with three hypotheses. The first of these
is “If the average age of receivables declines, then profits will
increase.” The second hypothesis is “If the written-off accounts
increase.”
Again, there are a number of possible explanations for the lack of
results consistent with the hypotheses. Managers may have
decreased the average age of receivables by simply writing off old
irritate otherwise loyal credit customers and reduce sales and profits.
50 Managerial Accounting for Managers, 4th Edition
Case 12-23 (continued)
order to eliminate them before the end of the season. This may have
reduced the willingness of customers to pay the store’s normal prices.
Or, managers may have gotten rid of excess inventories by selling
them to discounters
before
the end of the season.
