978-1260153132 Chapter 11 Part 5

Solutions Manual, Chapter 11 41

Problem 11-19 (continued)

b. Areas of deterioration:

Material control.

Scrap as a percentage of total cost has tripled (from

Machine performance.

Machine downtime has doubled (from 3% to

6%) over the last four months. This may be a result of the greater

Delivery performance.

All delivery performance measures are moving

3. a. and b.

Month

5 6

T

hrou

g

hput time in days:

Process time ………………………………….. 1.8 1.8

Inspection time ………………………………. 0.7 0.0

Move time ……………………………………… 0.5 0.5

T

As non-value-added activities are eliminated, the manufacturing cycle

efficiency improves. The goal, of course, is to have an efficiency of

42 Managerial Accounting, 16th Edition

Problem 11-20 (30 minutes)

1. Net operating income Sales

ROI = ×

Sales Avera

g

e operatin

g

assets

2. $360,000 $4,000,000

ROI = ×

$4,000,000 $1,600,000

3. $392,000 $4,000,000

ROI = ×

4. Interest is a financing expense and thus it is not used to compute net

operating income.

Solutions Manual, Chapter 11 43

Problem 11-20 (continued)

5. The company has a contribution margin ratio of 30% ($24 CM per unit,

divided by the $80 selling price per unit). Therefore, a 20% increase in

sales would result in a new net operating income of:

Sales (1.20 × $4,000,000) ….. $4,800,000 100 %

$600,000 $4,800,000

ROI = ×

$4,800,000 $2,000,000

6. $320,000 $4,000,000

ROI = ×

$4,000,000 $1,960,000

7. $360,000 $4,000,000

ROI = ×

$4,000,000 $1,800,000

44 Managerial Accounting, 16th Edition

Problem 11-21 (90 minutes)

1. Both companies view training as important; both companies need to

leverage technology to succeed in the marketplace; and both companies

are concerned with minimizing defects. There are numerous differences

between the two companies. For example, Applied Pharmaceuticals is a

product-focused company and Destination Resorts International (DRI) is

a service-focused company. Applied Pharmaceuticals’ training resources

are focused on their engineers because they hold the key to the success

Solutions Manual, Chapter 11 45

Problem 11-21 (continued)

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

Applied Pharmaceuticals

Return on

Stockholders’ Equity

Financial

Customer

R&D Yield Defect rates

Internal

Business

Processes

Percentage of job

offers accepted

Learning

and

Growth

+

+ –

+

46 Managerial Accounting, 16th Edition

Problem 11-21 (continued)

Destination Resorts International

Financial Sales +

Customer +

Internal

Business

Processes

+

Room cleanliness

Learning

and

Employee morale

surve

y

Employee

Number of employees

+

Solutions Manual, Chapter 11 47

Problem 11-21 (continued)

3. The hypotheses underlying the balanced scorecards are indicated by the

Applied Pharmaceuticals

o If the dollars invested in engineering technology increase, then the

o If the percentage of job offers accepted increases, then the R&D

o If the dollars invested in engineering training per engineer increase,

o If the R&D yield increases, then customer perception of first-to-

o If the defects per million opportunities decrease, then the customer

o If the customer perception of first-to-market capability increases,

o If the customer perception of product quality increases, then the

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,

o If the room cleanliness increases, then the number of repeat

o If the average time to resolve customer complaints decreases, then

48 Managerial Accounting, 16th Edition

Problem 11-21 (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

specifically, if Applied Pharmaceuticals experimented with nine possible

drug compounds in year one and three of those compounds proved to

be successful in the marketplace it would result in an R&D yield of 33%.

If in year two, it experimented with four possible drug compounds and

Solutions Manual, Chapter 11 49

Problem 11-22 (45 minutes)

The answers below are not the only possible answers. Ingenious people

can figure out many different ways of making performance look better

even though it really isn’t. This is one of the reasons for a

balanced

scorecard

. By having a number of different measures that ultimately are

linked to overall financial goals, “gaming” the system is more difficult.

1. Speed-to-market can be improved by taking on less ambitious projects.

Instead of working on major product innovations that require a great

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

50 Managerial Accounting, 16th Edition

Problem 11-22 (continued)

4. As stated above, ratios can be improved by changing either the

numerator or the denominator. Managers who are under pressure to

increase the revenue per employee may find it easier to eliminate

employees than to increase revenues. Of course, eliminating employees

may reduce total revenues and total profits, but the revenue per

Before eliminatin

g

the business unit

After eliminating

the business unit

T

otal revenue …………… $120,000,000 $110,000,000

T

As these examples illustrate, performance measures should be selected