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Solutions Manual Horngren’s Cost Accounting
A Managerial Emphasis 10th Canadian Edition Srikant M. Datar Madhav V. Rajan Louis Beaubien Steve Janz
All Chapters Arranged Reverse: 23-1
This is the Original Solutions Manual for 10 th Canadian Edition, All Other Files in the Market are Wrong/Old Questions.
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CHAPTER 23
MULTINATIONAL PERFORMANCE MEASUREMENT
AND COMPENSATION
SHORT-ANSWER QUESTIONS
23-1 Examples of financial and nonfinancial measures of performance are:
Financial: ROI, residual income, economic value added, and return on sales.
Nonfinancial: Customer perspective: market share, customer satisfaction.
Internal-business-processes perspective: manufacturing lead time, yield,
on-time performance, number of new product launches, and number of new patents filed.
Learning- and-growth perspective: employee satisfaction, information-
system availability.
23-2 The six steps in designing an accounting-based performance measure are:
- Choose performance measures that align with top management’s financial goals
- Choose the time horizon of each performance measure in Step 1
- Choose a definition of the components in each performance measure in Step 1
- Choose a measurement alternative for each performance measure in Step 1
- Choose a target level of performance
- Choose the timing of feedback
23-3 The DuPont method highlights that ROI is increased by any action that increases return on sales or investment turnover. ROI increases with
- increases in revenues,
- decreases in costs, or
- decreases in investments, while holding the other two factors constant.
23-4 Yes. Residual income (RI) is not identical to return on investment (ROI). ROI is a percentage with investment as the denominator of the computation. RI is an absolute monetary amount which includes an imputed interest charge based on investment.
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Instructor’s Solutions Manual for Cost Accounting, Tenth Canadian Edition
23-5 Economic value added (EVA) is a specific type of residual income measure that is
calculated as follows:
Economic value added (EVA) = After-tax operating income
– ()
Total assets minusWeighted-average cost of capitalcurrent liabilities ×
23-6 Definitions of investment used in practice when computing ROI are
- Total assets available
- Total assets employed
- Total assets employed minus current liabilities
- Shareholders’ equity
23-7 Current cost is the cost of purchasing an asset today identical to the one currently held if an identical asset can currently be purchased; it is the cost of purchasing an asset that provides services like the one currently held if an identical asset cannot be purchased. Historical-cost-based measures of ROI compute the asset base as the original purchase cost of an asset minus any accumulated depreciation.Some commentators argue that current cost is oriented to current prices, while historical cost is past-oriented.
23-8 Special problems arise when evaluating the performance of divisions in multinational companies because
- The economic, legal, political, social, and cultural environments differ significantly across
- Governments in some countries may impose controls and limit selling prices of products.
- Availability of materials and skilled labour, as well as costs of materials, labour, and
- Divisions operating in different countries keep score of their performance in different
countries.
infrastructure may differ significantly across countries.
currencies.
23-9 In some cases, the subunit’s performance may not be a good indicator of a manager’s performance. For example, companies often put the most skillful division manager in charge of the weakest division in an attempt to improve the performance of the weak division. Such an effort may yield results in years, not months. The division may continue to perform poorly with respect to other divisions of the company. But it would be a mistake to conclude from the poor performance of the division that the manager is performing poorly.A second example of the distinction between the performance of the manager and the performance of the subunit is the use of historical cost-based ROIs to evaluate the manager even though historical cost-based ROIs may be unsatisfactory for evaluating the economic returns earned by the organization subunit. Historical cost-based ROI can be used to evaluate a manager by comparing actual results to budgeted historical cost-based ROIs.
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Chapter 23:
Multinational Performance Measurement and Compensation 23-10 Moral hazard describes situations in which an employee prefers to exert less effort (or to report distorted information) compared with the effort (or accurate information) desired by the owner because the employee’s effort (or validity of the reported information) cannot be accurately monitored and enforced.23-11 Rewarding managers on the basis of their performance measures only, such as ROI, subjects them to uncontrollable risk because managers’ performance measures are also affected by random factors over which they have no control. A manager may put in a great deal of effort but her performance measure may not reflect this effort if it is negatively affected by various random factors. Thus, when managers are compensated on the basis of performance measures, they will need to be compensated for taking on extra risk. Therefore, when performance-based incentives are used, they are generally more costly to the owner. The motivation for having some salary and some performance-based bonus in compensation arrangements is to balance the benefits of incentives against the extra costs of imposing uncontrollable risk on the manager.23-12 Benchmarking or relative performance evaluation is the process of evaluating a manager’s performance against the performance of other similar operations. The ideal benchmark is another operation that is affected by the same noncontrollable factors that affect the manager’s performance.Benchmarking cancels the effects of the common noncontrollable factors and provides better information about the manager’s performance.23-13 When employees have to perform multiple tasks as part of their jobs, incentive problems can arise when one task is easy to monitor and measure while the other task is more difficult to evaluate. Employers want employees to intelligently allocate time and effort among various tasks.If, however, employees are rewarded on the basis of the task that is more easily measured, they will tend to focus their efforts on that task and ignore the others.23-14 Diagnostic systems monitor critical performance factors—such as ROI, RI, EVA, ROS, customer satisfaction, and employee satisfaction—that help managers monitor progress toward attaining the company’s strategic goals. Boundary systems describe standards of behaviour and codes of conduct expected of all employees, especially actions that are off-limits.Ethical behaviour on the part of managers is paramount.Belief systems articulate the mission, purpose, and core values of a company. They describe the accepted norms and patterns of behaviour expected of all managers and employees with respect to each other, shareholders, customers, and communities.Interactive control systems are formal information systems that managers use to focus organization attention and learning on key strategic issues. Interactive control systems track strategic uncertainties that businesses face.Measuring and rewarding managers for achieving critical performance variables is an important driver of corporate performance. But these diagnostic control systems must be counterbalanced by the other levers of control—boundary systems, belief systems, and interactive control systems—to ensure that proper business ethics, inspirational values, and attention to future threats and opportunities are not sacrificed to achieve business results. An excessive focus on diagnostic control systems and critical performance variables can cause an organization to ignore emerging threats and opportunities—changes in technology, customer preferences, regulations, and industry competition that can undercut a business..23-3
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