Performance Mgmt

Question 1

ROI

Answer 1

Return on investment: divisional profits/cap employed * 100

BAD: behaviourla problems - inject less capital too boost ROI
GOOD: can compare between entities of dif sizes

Question 2

RI

Answer 2

Residual income: controllable divisional profit - cost of cap = RI

GOOD: less behavioural issues; will increase when investments earning more than the cost of the cap; more flexible (a different cost of capital can be applied to riskier investments)
BAD: can’t compare

Question 3

Hopwood mgmt performance measurements (3)

Answer 3

Budget focused - budget bias, job-related tension - constantly meeting targets
Profit conscious - evaluated constantly on ability to meet target profits
Non-accounting - evaluation of budgetary info less important; less focus on cost control

Question 4

Responsibility accounting: cost centre

Answer 4

Controllable costs

Question 5

Responsibility accounting: revenue centre

Answer 5

Revenues

Question 6

Responsibility accounting: profit centre

Answer 6

Controllable costs, sales prices

Question 7

Responsibility accounting: investment centre

Answer 7

Controllable costs, sales prices, output volumes, investments in NCA + working cap

Question 8

The balance scorecard

Answer 8

Financial - how do we create value for our SHs?
Customer - what do new + existing customers want from us?
Innovation + learning - can we continue to improve + create value?
Internal business perspective - at what must we excel?