978-1260153132 Chapter 11 Part 2

Solutions Manual, Chapter 11 11

Exercise 11-2 (10 minutes)

A

vera

g

e operatin

g

assets …………………. $2,800,000

12 Managerial Accounting, 16th Edition

Exercise 11-3 (20 minutes)

1.

T

hrou

g

hput time = Process time + Inspection time + Move time +

Queue time

2. Only process time is value-added time; therefore the manufacturing

cycle efficiency (MCE) is:

–Value added time 2.7 days

MCE = = = 0.30

3. If the MCE is 30%, then 30% of the throughput time was spent in

4. Delivery cycle time = Wait time + Throu

g

hput time

5. If all queue time is eliminated, then the throughput time drops to only 4

days (2.7 + 0.3 + 1.0). The MCE becomes:

Solutions Manual, Chapter 11 13

Learning

and

Growth

Internal

Business

Processes

Financial

Customer

Exercise 11-4 (45 minutes)

1. Students’ answers may differ in some details from this solution.

Weekly profit

Weekly sales

Dining area

cleanliness

Percenta

g

e

of kitchen

+

Average time

to prepare an

order

Percentage

of dining

+–

14 Managerial Accounting, 16th Edition

Exercise 11-4 (continued)

2. The hypotheses underlying the balanced scorecard are indicated by the

arrows in the diagram. Reading from the bottom of the balanced

scorecard, the hypotheses are:

o If the percentage of dining room staff that complete the basic

o If the percentage of kitchen staff that complete the basic cooking

o If the dining room cleanliness improves, then customer satisfaction

o If the average time to take an order decreases, then customer

o If the average time to prepare an order decreases, then customer

o If the number of menu items increases, then customer satisfaction

o If customer satisfaction with service increases, weekly sales will

o If customer satisfaction with menu choices increases, weekly sales

o If sales increase, weekly profits for the Lodge will increase.

Each of these hypotheses can be questioned. For example, the items

added to the menu may not appeal to customers. So even if the number

of menu items increases, customer satisfaction with the menu choices

Solutions Manual, Chapter 11 15

Exercise 11-4 (continued)

3. Management will be able to tell if a hypothesis is false if an

improvement in a performance measure at the bottom of an arrow does

not, in fact, lead to improvement in the performance measure at the tip

16 Managerial Accounting, 16th Edition

Exercise 11-5 (15 minutes)

Division

Alpha Bravo Charlie

Sales (a) ……………………….. $4,000,000 $11,500,000 * $3,000,000

Net operatin

g

income (b) ….. $160,000 $920,000 * $210,000 *

A

vera

g

e operatin

g

assets

T

Note that Divisions Alpha and Bravo apparently have different strategies to

Solutions Manual, Chapter 11 17

Exercise 11-6 (20 minutes)

1. ROI computations:

Net operating income Sales

ROI = ×

Sales Avera

g

e operatin

g

assets

Osaka Division:

2.

Osaka Yokohama

A

vera

g

e operatin

g

assets (a) …..……………. $1,000,000 $4,000,000

3. No, the Yokohama Division is simply larger than the Osaka Division and

for this reason one would expect that it would have a greater amount of

residual income. Residual income can’t be used to compare the

18 Managerial Accounting, 16th Edition

Exercise 11-7 (45 minutes)

1. Students’ answers may differ in some details from this solution.

–

Revenue per employee Sales

Profit margin

Financial

Average number of

errors per tax return

Percentage of job

offers accepted

Employee morale

Customer

Internal Business

Processes

Learning

And Growth

++

–

Number of new

customers acquired

+

+ +

+

Solutions Manual, Chapter 11 19

Exercise 11-7 (continued)

2. The hypotheses underlying the balanced scorecard are indicated by the

arrows in the diagram. Reading from the bottom of the balanced

scorecard, the hypotheses are:

° If the amount of compensation paid above the industry average

° If the average number of years to be promoted decreases, then the

° If the percentage of job offers accepted increases, then the ratio of

billable hours to total hours should increase while the average

° If employee morale increases, then the ratio of billable hours to total

hours should increase while the average number of errors per tax

° If employee morale increases, then the customer satisfaction with

° If the ratio of billable hours to total hours increases, then the revenue

° If the average number of errors per tax return decreases, then the

° If the average time needed to prepare a return decreases, then the

° If the customer satisfaction with effectiveness, efficiency, and service

° If the number of new customers acquired increases, then sales

° If revenue per employee and sales increase, then the profit margin

20 Managerial Accounting, 16th Edition

Exercise 11-7 (continued)

Each of these hypotheses can be questioned. For example, Ariel’s

customers may define effectiveness as minimizing their tax liability

which is not necessarily the same as minimizing the number of errors in

a tax return. If some of Ariel’s customers became aware that Ariel

overlooked legal tax minimizing opportunities, it is likely that the

“customer satisfaction with effectiveness” measure would decline. This

3. The performance measure “total dollar amount of tax refunds

generated” would motivate Ariel’s employees to aggressively search for

tax minimization opportunities for its clients. However, employees may

be too aggressive and recommend questionable or illegal tax practices

However, if Ariel wanted to create a scorecard measure to capture this

aspect of its client service responsibilities, it may make sense to focus