BEC 3 - Performance Management

Question 1

Total Factor Productivity Ratio

Answer 1

Output / Total costs (in $)

Question 2

Partial Productivity Ratio

Answer 2

Output / Specific QUANTITY of material or labor (in units)

Question 3

Control Charts

Answer 3

A plot comparison of defects with an attempt to fall within an acceptable range. These charts show trends of improved quality or deteriorating quality

Question 4

Pareto / Frequency diagram

Answer 4

Shows the most frequent defects and which defects demand the greatest attention

Question 5

Fishbone diagram

Answer 5

Indicates the main categories of potential causes of deficiencies, often in conjunction with a Pareto / Frequency diagram. Attempts to trace defects back to the source

*4 Main areas to check - Materials, Manpower, Machinery, Method

Question 6

Types of Responsibility Segments / Strategic Business Units (SBUs)

Answer 6

• CRPI
  1) Cost SBU - Managers are responsible for controlling costs (Lowest level)
  2) Revenue SBU
  3) Profit SBU
  4) Investment SBU - Board, acts most like an independent business (Highest level)

Question 7

Contribution Margin

Answer 7

Selling price - Variable costs

Question 8

Controllable Margin

Answer 8

*Different from contribution margin

Contribution margin - controllable “fixed” costs

Question 9

4 Components of the balanced scorecard (FICA)

Answer 9

1) Financial
2) Internal business processes - efficient production, lower defects
3) Customer satisfaction - customer surveys
4) Advancement of innovation and HR development (learning and growth) - retention of key employees

Question 10

Costs of Quality (APIE)

Answer 10

1) Conformance Costs:
a) Appraisal costs - detecting defects (Testing)
b) Prevention costs - preventing defects (Employee Training)

2) Nonconformance Costs:
c) Internal failure - curing defects before customer (Rework costs)
d) External failure - cure defects after customer (Dealing with complaints)

Question 11

ROI Formula

Answer 11

Income / Investment Capital*
or
Profit Margin (NI/S) x Investment turnover (S/A)

*Avg. Assets or Avg PPE + Avg WC

Question 12

ROA Formula

Answer 12

Net income / Average total assets

Question 13

DuPont ROE

Answer 13

Net profit margin x Asset turnover x Financial leverage
or
Net income/Sales x Sales/Assets x Assets/Equity*

• or 1 + D/E
• *ROA x Financial leverage as well
• **Avg Assets and Equity should be used when calculating ROE if possible

Question 14

Residual Income Formula

Answer 14

Net income (from the IS) - Required return (on equity in $)
Where:
Required return = Net book value (Equity) x Hurdle Rate

Question 15

Economic Value Added Formula

Answer 15

Net operating profit after taxes (NOPAT) - Required return
Where:
Required return = Invested capital x WACC