BEC 1 Performance measurement

Question 1

Financial measures of performance

Answer 1

1. Profit
2. Return on investment
3. Variance analysis
4. Balanced scorecard

Question 2

Nonfinancial measures

Answer 2

1. External benchmarking - Productivity measures
   a. Total productivity ratios = all output / all input
   b. Partial productivity ratios = all outputs / major categories of inputs
2. Internal benchmarking - techniques to find and analyze the problem
   a. Control charts - acceptable range
   b. Pareto diagrams - most frequent issues
   c. Cause and effect (Fishbone) diagram

Question 3

Effective performance measures

Answer 3

• relate to goals of the organization
• balance long and short term issues
• reflect management of key activities
• under control of employees
• understood by employees
• used to reward the employee
• objective and easily measured
• used consistently

Question 4

Marketing methods

Answer 4

1. Transaction marketing
2. Interaction based relationship marketing
3. Database relationship
4. E- marketing
5. Network marketing

Question 5

Performance

Answer 5

1. Marketing methods are aligned with products

2. Performance incentives

Question 6

Incentive compensation

Answer 6

1. Fixed salary
2. Bonuses
3. Other perks

Question 7

Choices for management compensation

Answer 7

1. Time horizon
2. Fixed vs variable bonuses
3. Stock vs accounting based performance evaluation
4. Local vs company-wide performance
5. Cooperative vs competitive incentive plans

Question 8

Components of product cost

Answer 8

Direct materials DM
Direct labor DL
Manufacturing overhead MO

Question 9

Prime costs

Answer 9

Direct materials

Direct labor

Question 10

Conversion costs

Answer 10

Direct labor

Manufacturing overhead

Question 11

Product costs

Answer 11

inventoriable

become cost of goods sold when sold

Question 12

Period costs

Answer 12

expensed in the period incurred

Question 13

Traditional overhead rate

Answer 13

Budgeted manufacturing overhead costs / Estimated cost driver

Question 14

Relevant range

Answer 14

The relevant range is the range of volume for which the assumptions of the cost driver are valid and in which the actual value of the cost driver exists

Question 15

Treatment of costs incurred before the split off point for joint products

Answer 15

Costs incurred before the split off point are sunk costs, not relevant to further processing decisions

Joint costs are allocated using one of the following methods

Use % of product to total based on a ratio of:

• relative sales value
• net realizable value
• physical units

Question 16

Cost of goods manufactured

Answer 16

Work in progress beginning
Add: Direct materials
Direct labor
Manufacturing overhead
Less: Work in progress ending

Question 17

Cost of goods sold

Answer 17

Finished goods beginning
Add cost of goods manufactured or Purchased
Less finished goods ending

Question 18

Job costing

Answer 18

Each unit/batch is unique and easily identifiable costs are determined by each job

Example: We print your resume in our print shop

Question 19

Process costing

Answer 19

Continuous mass produced identical units are manufactured, and costs are determined by activity/process/department

Example: We process crude oil into gasoline

Question 20

Equivalent unit

Answer 20

• used in process costing, equivalent units are fully completed and partially completed units during the period
• in applying costs, determine the units, then costs, then apply the cost flow assumption for cost per unit and allocation of cost

Question 21

FIFO method - equivalent units

Answer 21

Equivalent units = (Beginning WIP x % to be completed) + Units started and completed + (Ending WIP x % completed)

Question 22

FIFO method - total cost calculation

Answer 22

Total cost = Cost incurred during the current period

Question 23

Weighted average method - equivalent units

Answer 23

Equivalent units = Units completed + (Ending WIP x % completed)

Question 24

Weighted average method = total cost calculation

Answer 24

Total cost = Costs in beginning WIP + Costs incurred during the current period

Question 25

Types of spoilage

Answer 25

1. Abnormal - charge to income of the current period

2. Normal - increase the cost of the product produced (inventory)

Question 26

Activity based costing

Answer 26

ABC is a costing theory that assumes that resource consuming activities cause costs and that costs should be assigned to benefiting products based on the activities performed and the resources consumed.

ABC divide costs into multiple activity into multiple activity centers and identify the activities that drive the costs in each cost center. Costs are then assigned based on the volume of cost drivers at the determined rate per cost driver.

Question 27

Characteristics of effective performance measures

Answer 27

Effective performance measures:

1. Relate to the goals of the organization
2. Balance long and short term issues
3. Reflect management of key activities sometimes referred to as critical success factors in the balanced scorecard.
4. Are under the control or influence of the employee
5. Are understood by the employee
6. Are used to both evaluate and reward the employee or otherwise constructively influence behavior.
7. Are objective and are easily measured.
8. Are used consistently

Question 28

Transaction marketing

Answer 28

Customers are attracted for the sake of a single sale

Question 29

Interaction-based relationship marketing

Answer 29

When customers are attached for the purpose of a sale that serves as the basis for an ongoing relationship

Question 30

Database marketing

Answer 30

Information is gathered on customers and the information from that database is used to segment customers into target markets for a more effective selling effort.

Question 31

Types of compensation

Answer 31

1. Fixed salary
2. Bonuses
3. Perks

Question 32

Incentive compensation

Answer 32

1. Time horizon
2. Fixed vs variable bonuses
3. Stock vs accounting based performance evaluation
4. Local vs company wide performance
5. Cooperative vs competitive plans