Chapter 11

Question 1

Three Topics That Help Us Make Decisions

Answer 1

• ROI
• MCE
• Balanced Scorecard

Question 2

Cost Centers

Answer 2

can control costs only and are evaluated by performance report standards

Question 3

Profit Centers

Answer 3

can control costs and revenues…. are evaluated by contribution and segment margins

Question 4

Investment Centers

Answer 4

can control,revenues, and assets

are evaluated by ROI and Residual Income

Question 5

ROI Formula

Answer 5

Average Operating Assets

Question 6

Residual Income Formula

Answer 6

Actual Net Operating Income
-(minimum required rate of return x average operating assets)
———————————————————————-
Residual Income

Question 7

How is NOI different from NI?

Answer 7

NOi=Earnings before taxes and interest

Question 8

Rules for Measuring Performance #1(ROI)

Answer 8

IF return on the new project> Current ROI

Accept the Project

Question 9

Residual Income

Answer 9

If the RI is positive= accept project because you are earning more than the minimum required ( in other words accept if ROI> min required).

Question 10

What is residual income also called?

Answer 10

Economic Value Added

Question 11

How can the residual income be restated in terms of ratios?

Answer 11

Current ROI ratio- minimum required ratio= residual income ratio

Question 12

MCE formula

Answer 12

Throughput Time

Question 13

What can MCE not be greater than?

Answer 13

cannot be greater than 1.00

Question 14

The lower the MCE…..

Answer 14

the less time spent adding value to the product

Question 15

Balanced Scorecard Components

Answer 15

• Financial
• Customer
• Internal Processes
• Learning and Growth

Question 16

What are the balanced scorecard components also known as?

Answer 16

KPI= key performance indicators

Question 17

Newer Areas of Concern

Answer 17

1) Safety of Employees
2) going green initiative- sustainability \
3) Social Responsibility

Question 18

Possible Areas To Track Part 1

Answer 18

• customer satisfaction as measure by a survey
• number of customer complaints
• market share
• product returns as percentage of sales
• amount of time to answer the phone

Question 19

Possible Area to Track Part 2

Answer 19

• On time deliveries as percentage of all deliveries
• time to correct a customer complaint
• suggestions per employee
• employee turnover
• hours of in house training fro employees

Question 20

ROI Formula #2

Answer 20

Margin x Turnover

Question 21

Sub optimization

Answer 21

: May hurt the company as a whole by rejecting the new project that has a lower ROI than the division’s ROI but higher than the company’s ROI

Question 22

If Residual income is positive……

Answer 22

If the RI is positive ⇒ accept project because you are earning more than the minimum required (in other words accept if ROI > min. required).

Question 23

Problem with Residual Income

Answer 23

Problem: With residual income (RI) cannot compare projects of 2 different sizes or dollar amounts – unless you compare using ratios.

Question 24

Formula for Residual Income Ratio

Answer 24

Current ROI ratio – minimum required ratio

Question 25

NOI vs NI

Answer 25

NOI (net operating income) is different from Net income. NOI = EBIT (Earnings before taxes & interest). You can calculate by starting with NI + taxes + interest

Question 26

What adds value in MCE?

Answer 26

process time

Question 27

What is non value added time in MCE?

Answer 27

- wait time - inspection time - move time - queue time

Question 28

Balanced Scorecard

Answer 28

An integrated set of performance measures that are derived from and support the organization’s strategy. It typically is divided into 4 performance measures.

Question 29

what are the balance scorecard components also know as?

Answer 29

KPI(key performance indicators)

Question 30

Newer Areas of Concern

Answer 30

Newer areas of concern: 1) Safety of employees 2) “going green” initiatives Sustainability 3) Social responsibility

Question 31

What is GRI?

Answer 31

Global Reporting Initiative