Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
CHAPTER 12
Responsibility Accounting, Operational
Performance Measures, and the Balanced
Scorecard
ANSWERS TO REVIEW QUESTIONS
12-1 Goal congruence results when the managers of subunits throughout an organization
strive to achieve objectives that are consistent with the goals set by top
management. In order for the organization to be successful, the managers and
12-2 (a) Cost center: A responsibility center, the manager of which is accountable for the
subunit’s costs. (An example is a production department in a manufacturing
firm.)
12-3 It would be appropriate to change a particular hotel from a profit center to an
12-4 Flexible budgeting allows a performance report to be constructed in a meaningful
way. The performance report should compare actual expenses incurred with the
12-5 Under activity-based responsibility accounting, management’s attention is directed
toward activities, rather than being focused primarily on cost, revenue, and profit
12-6 Attention to the following two factors may yield positive behavioral effects from a
responsibility-accounting system.
(a) When properly used, a responsibility-accounting system does not emphasize
12-7 Rarely does a single individual completely control a result in an organization. Most
results are caused by the joint efforts of several people and the joint impact of
12-8 (a) Cost pool: A collection of costs to be assigned to a set of cost objects. (An
(b) Cost object: A responsibility center, product, or service to which a cost is
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
12-9 An example of a common resource in an organization is a computer department. The
resource includes the computer itself, the software, and the computer specialists
12–10 A computer system has a limited capacity at any one time. Allocating the cost of
12–11 A cost allocation base is a measure of activity, physical characteristic, or economic
characteristic associated with the responsibility centers, which are the cost objects
12–12 Marketing costs are distributed to the hotel’s departments on the basis of budgeted
sales dollars so that the behavior of one department does not affect the costs
12–14 Many managers and accountants believe that it is misleading to allocate common
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
12–15 It is important in responsibility accounting to distinguish between segments and
segment managers, because some costs that are traceable to a segment may be
12–16 Three key features of a segmented income statement are as follows: contribution
12–17 A common cost for one segment can be a traceable cost for another segment. For
example, the salary of the general manager of a hotel is traceable to that segment of
12–18 Customer profitability analysis refers to using the concepts of activity-based costing
to determine how serving particular customers causes activities to be performed and
12–19 Seven areas in which nonfinancial operational performance measures are being
used are as follows:
(a) Raw material and scrap
12–20 Manufacturing cycle efficiency (MCE) is defined as processing time divided by the
12–21 Examples of customer-acceptance measures include the number of customer
12–22 An aggregate productivity measure is defined as total output divided by total input.
Such a measure is limited because it is expressed in dollars, rather than in physical
12–23 An airline could measure the frequency and cost of customer complaints about lost
12–24 Responses will vary widely on this question. Here are some possibilities for a bank:
• Financial: (a) profit; (b) cost of back-office (i.e., administrative) operations.
12–25. Lead measures, such as market share or new financial products, show how well the
bank is doing now in areas that will affect financial performance in the future. Lag
12–26. Improvement in employee retention could lead to improvement in internal business
processes, such as better product or service quality, faster manufacturing cycle
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
SOLUTIONS TO EXERCISES
EXERCISE 12-27 (10 MINUTES)
The Maintenance Department should not be charged for the excess wages of the skilled
EXERCISE 12-28 (10 MINUTES)
(1)
Orange juice factory: Cost center or profit center.
(2)
College of engineering at a university: Profit center.
(By designating the college of engineering as a profit center, this subunit is
(4)
Outpatient clinic in a profit-oriented hospital: Profit center.
Mayor’s office of a city: Cost center.
(6)
Movie theater: Cost center or profit center.
(7)
Radio station: Profit center.
Claims department: Cost center.
(9)
Ticket sales division of an airline: Revenue center.
Bottling plant: Cost center.
EXERCISE 12-29 (50 MINUTES)
PERFORMANCE REPORTS FOR MARCH:
SELECTED SUBUNITS OF ALOHA HOTELS AND RESORTS
(IN THOUSANDS)
Flexible Budget*
Actual Results*
Variance†
March
Year to
Date**
March
Year to
Date**
March
Year to
Date**
Food and Beverage Department
Banquets & Catering …………..
$ 650
$ 1,910
$ 658
$ 1,923
$ 8 F
$ 13 F
Restaurants ……………………….
1,800
5,550
1,794
5,534
6 U
16 U
Kitchen ………………………………
Total profit …………………………
$ 1,383
$ 4,215
$2 U
Kitchen
Kitchen staff wages …………….
$1 U
Food ………………………………….
(690)
(690)
1 U
Paper products …………………..
(125)
(375)
(122)
(370)
Variable overhead ………………
(225)
(232)
3 U
7 U
Fixed overhead …………………..
(90)
*Numbers without parentheses denote profit; numbers with parentheses denote expenses.
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
EXERCISE 12-30 (10 MINUTES)
The appropriate responsibility-accounting treatment for each of the scenarios is the
following:
(1)
Since the cost of idle time incurred in Department B was due to the breakdown of
(2)
If the machinery had been properly maintained, it would be more appropriate not to
charge the cost due to idle time in Department B back to Department A. This cost
EXERCISE 12-31 (10 MINUTES)
A profit center such as this might not be free to sell its services outside the company.
By designating this department as a profit center, the corporation has given the managers
of the department an opportunity to manage their operation just like a full-fledged business.
EXERCISE 12-32 (30 MINUTES)
1.
Allocation of costs:
Division
Department
and
Allocation Base
Liberal Arts
Sciences
Business
Administration
Total
Cost
Allocated
Admissions
(enrollment)
$46,800
(1,000/2,500)
$37,440
(800/2,500)
$32,760
(700/2,500)
$117,000
$73,125
$68,250
The Admissions Department costs are allocated on the basis of enrollment. The more
students enrolled in a division, the more admissions there are to process.
The Registrar’s costs are allocated on the basis of credit hours. The greater the
number of credit hours, the more course registrations there are to process.
The Computer Services Department’s costs are allocated on the basis of the
2.
The estimated amount of computer time required would probably be a better
allocation base for the Computer Services Department. Two different courses
The number of courses would probably be a better allocation base for the Registrar’s
costs. Costs in this department are driven by processing course registrations, not
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
EXERCISE 12-33 (40 MINUTES)
1. Segmented income statement:
SEGMENTED INCOME STATEMENTS: TRI-COUNTY CABLE SERVICES, INC.
Tri-County
Segments of Company
Cable
Services
Metro
Suburban
Outlying
Service revenue ………………….
$2,050,000
$950,000
$750,000
$350,000
Variable expenses ……………….
50,000
Segment contribution margin
$1,750,000
$800,000
$650,000
$300,000
Less: Fixed expenses,
40,000
Less: Common fixed expenses
Income before taxes ……………
Less: Income tax expense ……
Less: Fixed expenses
EXERCISE 12-34 (30 MINUTES)
Answers will vary widely, depending on the company. Some examples are as follows:
Marriott Hotels: Company-owned hotel, profit center
McDonald’s Corporation: Company-owned restaurant, profit center
EXERCISE 12-35 (15 MINUTES)
1.
Aggregate (or total) productivity
=
input total
output total
2.
This summary financial measure does not convey much information to management
or other users of the data. A preferable approach would be to record multiple physical
measures that capture the most important determinants of the bank’s productivity.
Examples include the following:
a.
Clerk time per bank window customer
Errors per 1,000 transactions handled
c.
Checks miscoded per 1,000 checks processed
Customers per day
e.
Customers per employee
Square feet of space in bank per 1,000 customers
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
EXERCISE 12-36 (10 MINUTES)
1.
Manufacturing cycle efficiency (MCE):
MCE
=
timemove time waiting timeinspection timeprocessing
timeprocessing
+++
=
EXERCISE 12-37 (10 MINUTES)
1.
Manufacturing cycle efficiency
=
timemove time waiting
timeinspection timeprocessing
timeprocessing
++
+
=
2.
Manufacturing cycle time
=
batch per units
batch per timeproduction total
=
.25 hour (or 15 minutes) per unit
3.
Velocity
=
batch per timeproduction total
batch per units
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
EXERCISE 12-38 (30 MINUTES)
1. The overall long-term goal for a profit-seeking enterprise generally is profitability.
This means that the key long-term goal in a profit-seeking business’s balanced
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
SOLUTIONS TO PROBLEMS
PROBLEM 12-39 (30 MINUTES)
A wide range of responses is possible for this problem. The organization chart and
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
PROBLEM 12-39 (CONTINUED)
Maui Division
Aloha Hotels and Resorts, Inc.
Oahu Division
PROBLEM 12-39 (CONTINUED)
MANAGER
RESPONSIBILITY
CENTER
President of Aloha
Hotels and Resorts, Inc.
Investment
Center
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
PROBLEM 12-40 (40 MINUTES)
Once again, a wide range of responses is possible, depending on the organization designed
in the preceding problem. The format for the performance reports is given in Exhibit 12-4 for
Aloha Hotels and Resorts. This exhibit is repeated here for convenience.
PERFORMANCE REPORTS FOR FEBRUARY:
SELECTED SUBUNITS OF ALOHA HOTELS AND RESORTS
(IN THOUSANDS)
Flexible Budget*
Actual Results*
Variance†
Year
Year
Year
to
to
to
February
Date
February
Date
February
Date
Maui Division ………….
$18,400
$38,620
$18,470
$ 38,630
$ 70 F
$10 F
Oahu Division …………
Total profit ………………
$30,660
$64,567
$30,716
$ 64,570
$ 56 F
$ 3 F
Oahu Division
Waimea Beach Resort
$ 6,050
$12,700
$ 6,060
$ 12,740
$ 10 F
$40 F
Diamond Head Lodge
Waikiki Sands Hotel ..
Total profit ………………
$12,260
$25,947
$12,246
$ 7 U
Waikiki Sands Hotel
Grounds & Maintenance
$ (45)
$ (90)
$ 1 F
—
Housekeeping &
Custodial
(40)
(90)
(41)
(90)
1 U
—
Recreational Services
$ 3 F
Hospitality ………………
Food and Beverage …
Total profit ………………
$ 4,136
Food and Beverage Dept.
Banquets & Catering
$ 600
$ 1,260
$ 605
$ 1,265
$ 5 F
$ 5 F
Restaurants …………….
Kitchen …………………..
Total profit ………………
$ 1,355
$ 2,842
$ 1,340
$ 2,832
$ 15 U
$10 U
Kitchen
Kitchen staff wages …
$ (80)
$ (168)
$ (78)
$ (169)
$ 2 F
$ 1 U
Food ………………………
(675)
(1,420)
(678)
(1,421)
3 U
1 U
Paper products ……….
Variable overhead …..
(70)
(150)
(71)
(154)
1 U
4 U
Fixed overhead ……….
* Numbers without parentheses denote profit; numbers with parentheses denote expenses.
PROBLEM 12-41 (35 MINUTES)
Memorandum
Date:
Today
To:
Sandy Beach, General Manager of Waikiki Sands Hotel
From:
I.M. Student
Subject:
Responsibility Centers
recommendations, staff scheduling, and use of materials and equipment.
The Waikiki Sands Hotel is a profit center as specified by the corporation’s top
management. The hotel’s general manager does not have the authority to make significant
investment decisions, so an investment-center designation would be inappropriate for the
hotel.
Chapter 12 – Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard
PROBLEM 12-42 (60 MINUTES)
1.
Performance Report for August: Selected Subunits of Mount Ranier General Hospital
Flexible Budget
Actual Results
Variance*
Year
Year
Year
to
to
to
August
Date
Date
Date
Hospital
General Medicine Division
$ 420,000
$3,360,000
$ 408,000
$3,341,800
Surgical Division ………..
280,000
282,000
Medical Support Division
365,400
365,300
100 F
8,000 U
Administrative Division .
100,000
800,000
107,000
812,000
Total cost …………………..
$1,165,400
$9,323,200
$1,162,300
$9,316,600
Medical Support Division
Nursing Department ……
$ 140,000
$1,120,000
$ 150,000
$1,160,000
$10,000 U
$40,000 U
Radiology and Labor-
atory Department ………..
36,000
288,000
36,200
288,000
200 U
—
Nutrition Department…..
143,400
143,900
500 U
10,000 U
Housekeeping
Department
Maintenance Department
26,000
Total cost …………………..
$ 365,400
$2,923,200
$ 365,300
$2,931,200
$ 100 F
$ 8,000 U
Nutrition Department
$ 15,000
$ 120,000
$ 15,000
—
—
Food Service Section ….
66,400
531,200
70,100
545,200
$ 3,700 U
$14,000 U
Kitchen ………………………
Total cost …………………..
$ 143,400
$1,147,200
$ 143,900
$1,157,200
$10,000 U
Registered Dietitians’
Food Service Section
Patient Food Service …..
$ 34,000
$ 272,000
$ 37,000
$ 274,000
$3,000 U
$ 2,000 U
Cafeteria …………………….
32,400
259,200
33,100
271,200
Total cost …………………..
$ 66,400
$ 531,200
$ 70,100
$ 545,200
$3,700 U
Cafeteria
Food servers’ wages …..
$ 16,000
$ 128,000
$ 18,000
$ 144,000
$2,000 U
$16,000 U
Paper products …………..
9,000
72,000
8,800
72,400
200 F
400 U
Utilities ………………………
2,000
16,000
2,100
16,200
100 U
200 U
Maintenance ……………….
6,400
600 F
Custodial ……………………
2,200
17,600
2,200
—
400 F
*F denotes favorable variance; U denotes unfavorable variance.