Introduction To Managerial Accounting
8th Edition
ISBN: 9781259917066
Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.
Publisher: Mcgraw-hill Education,
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Question
Chapter 10, Problem 22P
1)
To determine
Perverse effects of performance measures:
- Management and evaluation of performance measures of operational results, is often accompanied with ethical dilemmas.
- These refer to situations where those charged with operational responsibilities such as managers, have to choose between personal gain and professional objectives of the organization.
- Perverse effects of performance measures arise when managers choose to distort and deliberately misrepresent the results of performance initiatives in order to gain financial growth, as certain key performance indicators are linked to remunerations of managers or to gain professional growth.
- These effects are seen when actions taken by managers to make their performance look better, actually harm the organization.
Actions that managers take to show improvement in the performance measure but which do not actually lead to improvement in the organizations overall improvement
To determine
Actions that managers take to show improvement in the performance measure but which do not actually lead to improvement in the organizations overall improvement
To determine
Actions that managers take to show improvement in the performance measure but which do not actually lead to improvement in the organizations overall improvement
To determine
Actions that managers take to show improvement in the performance measure but which do not actually lead to improvement in the organizations overall improvement
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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…
There is often more than one way to improve a performance measure. Unfortunately, some of the actionstaken 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 theycan also usually be achieved by simply cutting prices. The increase in volume from cutting prices almostalways results in greater total revenues; however, it does not always lead to greater total profits. Thosewho 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 consequenceselsewhere.Required:For each of the following situations, describe actions that managers might take to show improvement inthe performance measure but which do not actually lead to improvement in…
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.
Chapter 10 Solutions
Introduction To Managerial Accounting
Ch. 10 - What is meant by the term decentralization?Ch. 10 - What benefits result from decentralization?Ch. 10 - Distinguish between a cost center, a profit...Ch. 10 - What is meant by the terms margin and turnover in...Ch. 10 - Prob. 5QCh. 10 - In what way can the use of ROI as a performance...Ch. 10 - What is the difference between delivery cycle tame...Ch. 10 - What does a manufacturing cycle efficiency (MCE)...Ch. 10 - Prob. 9QCh. 10 - Prob. 10Q
Ch. 10 - Prob. 1AECh. 10 - Prob. 2AECh. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Prob. 6F15Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Prob. 9F15Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Westerville Company reported the following result...Ch. 10 - Compute the Return or Investment (ROI) Alyeska...Ch. 10 - Residual Income Jumper Design Lid of Manchester....Ch. 10 - Measures of Internal Business Process Performance...Ch. 10 - Building a Balanced Scorecard Lost Peak ski resort...Ch. 10 - Return on Investment (ROI) Provide the missing...Ch. 10 - Prob. 6ECh. 10 - Creating a Balanced Scorecard Ariel Tax Services...Ch. 10 - Computing and Interpreting Return on Investment...Ch. 10 - Return on Investment (ROI) and Residual Income...Ch. 10 - Cost-Volume-Profit Analysis and Return on...Ch. 10 - Effects of Charges in Profits arid Assets on...Ch. 10 - Prob. 12ECh. 10 - Effects of Changes in Sales, Expenses, and Assets...Ch. 10 - Measures of Internal Business Process Performance...Ch. 10 - Prob. 15PCh. 10 - Creating a Balanced Scorecard Mason Paper Company...Ch. 10 - Comparison of Performance Using Return on...Ch. 10 - Return on Investment (ROI) and Residual Income "I...Ch. 10 - Internal Business Process Performance Measures...Ch. 10 - Return on Investment (ROI) Analysis The...Ch. 10 - Creating Balanced Scorecards that Support...Ch. 10 - Prob. 22P
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Similar questions
- Many companies have viewed JIT as a panacea—a knight in shining armor which promises rescue from sluggish profits, poor quality, and productive inefficiency. It is often lauded for its beneficial effects on employee morale and self-esteem. Yet, JIT may also cause a company to struggle and may produce a good deal of frustration. In some cases, JIT appears to deliver less than its reputation seems to call for. Required: Discuss some of the limitations and problems that companies may encounter when implementing a JIT system.arrow_forwardCriticisms 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.arrow_forwardWhich 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 costsarrow_forward
- Biases like motivated reasoning and surrogation are very prevalent in the business world. Man- agers are often compensated and evaluated based on performance measures such as production costs and profit margin. Hence, when subjective decisions need to be made regarding joint cost allocation, support department cost allocation, and budgeting, managers are motivated to believe and overvalue evidence that supports their products receiving less cost allocations, more budgeting, and other favorable outcomes. At the same time, managers will discount any evidence or reasoning that does not produce a favorable outcome for them. This is all part of the bias known as motivated reasoning. It is important to note, as well, that people exhibit the motivated reasoning bias unconsciously. In other words, people commonly overvalue favorable information and discount unfavorable information without realizing it. (Continued)arrow_forwardUsing the revenue per employee ratio as an indicator for productivity will lead to outsourcing of personnel, even when it increases cost.True or false? And why?arrow_forwardWhat of the following is NOT a Benefit of Activity Based Management? a.It assists in the budgeting process. b.It aids management in cost cutting and/or cost control and inferentially in product profitability. c.It causes managers to identify non-value added activities and therefore encourages thinking of means of reducing such activities. d.Is more complex than traditional accounting system because it uses multiple cost application rates, one for each activity or cost pool.arrow_forward
- When a company is decentralized, top management will have little time to focus on long-term strategy because they will be too focused on managing day to day operations. True O False Select all of the below that are advantages of decentralization. Decentralization allows companies to duplicate costs. Decentralization provides training. Decentralization improves customer and supplier relations. Decentralization improves motivation and retention.arrow_forwardWhy might relevant costs analysis be bad for a company if used too frequently? Multiple Choice It overemphasizes short-term goals and neglects long-term goals. It complicates the job of managers. It focuses too much on strategy and not enough on financial measures. It could lead to a permanent change in the production process of the company. It overemphasizes long-term goals and neglects short-term goals.arrow_forwardWithout proper performance measures, goal congruence is almost impossible to achieve and will likely lead to _______. A. more stable targets B. decreased defects C. lost profits D. employees satisfied with the status quoarrow_forward
- Cost accounting logic can lead managers to keep their resources busy all the time, increasing productivity with no regard to demand. What is the negative result of this effect?arrow_forwardWhat is turnover? What does it measure? Describe this in your own words. Writing a formula is not a sufficient answer. Name one specific way a manager could improve turnover. This will demonstrate your understanding. Explain why your idea would have a positive effect on turnover?arrow_forwardExplain 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?arrow_forward
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