ACYMAG2

Exercise Set #3
Term 2, AY2023-2024
Source: Hansen, D.R. and Mowen, M.M. (2015). Cornerstones of Cost Management, 3 rd edition. Mason,
OH: South Western Cengage Learning.

EXERCISE 1. Multiple Choice. Choose the CAPITAL LETTER of the best answer.

1. In a balanced scorecard, a key strategic if-then statement is provided: if the number of

defective units decreases, then market share will increase. Assume that the targeted
reduction level of defective units was achieved but that the targeted market share increase
was not achieved. Which statement BEST describes this outcome?
A. The company has not successfully implemented its strategic plan.
B. Single-loop feedback is needed.
C. The hypothesized relationship is somehow invalid.
D. Corrective action must be taken so that the strategy can be executed as intended.

2. Which of the following is one of the four perspectives of the Balanced Scorecard?
A. Just in Time
B. Process
C. Benchmarking
D. Activity-Based Costing

3. A manufacturing cell produces 40 units in five hours. What is the cycle time for the
manufacturing cell?
A. 8 units per hour
B. 8 hours per unit
C. 1/8 unit per hour
D. 7.5 minutes per unit

4. Which of the following objectives would likely be associated with the learning and growth
perspective of the balanced scorecard?
A. Increasing post-sales service efficiency
B. Increasing information system capabilities
C. Decreasing product development cycle time
D. Improving product image and reputation

5. Which of the following objectives would likely be associated with the customer perspective
of the balanced scorecard?
A. Increasing post-sales service efficiency
B. Decreasing product development cycle time
C. Reducing distribution channel cost
D. Increasing delivery reliability
EXERCISE 2. Harmon Community Hospital developed the following series of if-then statements
for its Balanced Scorecard strategy:
• If employee turnover rate decreases and employee satisfaction increases, then the
quality of health care service will improve.
• If the quality of health care service improves, then operating efficiency will increase
and patient satisfaction will increase.
• If operating efficiency increases, then operating costs will decrease.
• If patient satisfaction increases, then market share will increase.
• If market share increases, then revenues will increase.
• If revenues increase and costs decrease, then profits will increase.

1. Prepare a strategy map for Harmon’s strategy as described by the series of cause-and-
effect relationships.
2. What if profits did not increase to the targeted level? Explain how this result could be
attributable to either an implementation problem or an invalid strategy.

EXERCISE 3. The Balanced Scorecard is an approach that has the objective of driving change.
Performance evaluation is an integral part of this effort. Performance evaluation within the
Balanced Scorecard framework is also concerned with the effectiveness and viability of the
organization’s strategy.

1. Describe how the Balanced Scorecard is used to drive organizational change.

2. Explain how performance evaluation is used to assess the effectiveness and viability of
an organization’s strategy.

EXERCISE 4. Consider the following list of scorecard measures. Classify each measure
according to the following: (a) perspective, (b) financial or nonfinancial, (c) subjective or
objective, and (d) external or internal.

1. Product profitability
2. Ratings from customer surveys
3. Number of patents pending
4. Strategic job coverage ratio
5. Revenue per employee
6. Quality costs
7. Percentage of market
8. Employee turnover percentages
9. First-pass yields
10. On-time delivery percentage
11. Percentage of revenues from new sources
12. Economic value added
EXERCISE 5. The following if-then statements were taken from a Balanced Scorecard:
• If employee capabilities increase, then process time decreases.
• If process time decreases, then customer retention will increase.
• If customer retention increases, then market share will increase.
• If market share increases, then revenues will increase.

1. Identify the lead and lag variables.

2. Discuss the implications of Requirement 1 for the financial and learning and growth
perspectives.

EXERCISE 6. Bannister Company, an electronics firm, buys circuit boards and manually inserts
various electronic devices into the printed circuit board. Bannister sells its products to original
equipment manufacturers. Profits for the last two years have been less than expected. Mandy
Confer, owner of Bannister, was convinced that her firm needed to adopt a revenue growth and
cost reduction strategy to increase overall profits.

After a careful review of her firm’s condition, Mandy realized that the main obstacle for
increasing revenues and reducing costs was the high defect rate of her products (a 6 percent
reject rate). She was certain that revenues would grow if the defect rate was reduced
dramatically. Costs would also decline as there would be fewer rejects and less rework. By
decreasing the defect rate, customer satisfaction would increase, causing, in turn, an increase
in market share. Mandy also felt that the following actions were needed to help ensure the
success of the revenue growth and cost reduction strategy:
• Improve the soldering capabilities by sending employees to an outside course.
• Redesign the insertion process to eliminate some of the common mistakes.
• Improve the procurement process by selecting suppliers that provide higher-quality
circuit boards.

Suppose that Mandy communicates the following weights to her CEO:

• Perspective: Financial, 40%; Customer, 20%; Process, 20%; Learning & growth, 20%
• Financial objectives: Profits, 50%; Revenues, 25%; Costs, 25%
• Customer objectives: Customer satisfaction, 60%; Market share, 40%
• Process objectives: Defects decrease, 40%; Supplier selection, 30%; Redesign process, 30%
• Learning & growth objective: Training, 100%

Mandy next sets up a bonus pool of ₱100,000 and indicates that the weighting scheme just
described will be used to determine the amount of potential bonus for each perspective and
each objective.

1. Calculate the potential bonus for each perspective and objective.

2. Describe how Mandy might award actual bonuses so that her managers will be
encouraged to implement the Balanced Scorecard.
3. What are some other ways that Mandy can encourage alignment with the company’s
strategic objectives (other than incentive compensation)?
EXERCISE 7. At the end of 2020, Mejorar Company implemented a low-cost strategy to
improve its competitive position. Its objective was to become the low-cost producer in its
industry. A Balanced Scorecard was developed to guide the company toward this objective. To
lower costs, Mejorar undertook a number of improvement activities such as JIT production,
total quality management, and activity-based management. Now, after two years of operation,
the president of Mejorar wants some assessment of the achievements. To help provide this
assessment, the following information on one product has been gathered:

2020 2022
Theoretical annual capacity* 249,600 249,600
Actual production** 208,000 234,000
Market size (in units sold) 1,300,000 1,300,000
Production hours available (40 workers) 104,000 104,000
Very satisfied customers 83,200 140,400
Actual cost per unit (in ₱) 325 260
Days of inventory 15.6 7.8
Number of defective units 13,000 5,200
Total worker suggestions 104 312
Hours of training 260 1,040
Selling price per unit (in ₱) 195 195
Number of new customers 5,200 26,000
* Amount that could be produced given the available production hours; everything produced is sold.
** Amount that was produced given the available production hours.

Compute the following measures for 2020 and 2022:

1. Percentage of total revenue from new customers (assume one unit per customer)
2. Percentage of very satisfied customers (assume each customer purchases one unit)
3. Market share
4. Percentage change in actual product cost (for 2022 only)
5. Percentage change in days of inventory (for 2022 only)
6. Defective units as a percentage of total units produced
7. Total hours of training
8. Suggestions per production worker
9. Total revenue
10. Number of new customers
EXERCISE 8. The following strategic objectives have been derived from a strategy that seeks
to improve asset utilization by more careful development and use of its human assets and
internal processes. (a) Classify the objectives by perspective, and (b) suggest a measure for
each objective.

1. Increase revenue from new products

2. Increase implementation of employee suggestions
3. Decrease operating expenses
4. Decrease cycle time for the development of new products
5. Decrease rework
6. Increase employee morale
7. Increase customer satisfaction
8. Increase access of key employees to customer and product information
9. Increase customer acquisition
10. Increase return on investment (ROI)
11. Increase employee productivity
12. Decrease the collection period for accounts receivable
13. Increase employee skills

The heart of the strategy is developing the company’s human resources. Management is
convinced that empowering employees will lead to an increase in economic returns. Studies
have shown that there is a positive relationship between employee morale and customer
satisfaction. Furthermore, the more satisfied customers pay their bills more quickly. It was
hypothesized that as employees became more involved and more productive, their morale
would improve. Thus, the strategy incorporated key objectives that would lead to an increase
in productivity and involvement.