Accounting Business Reporting for Decision Making

CHAPTER 14 Performance measurement 595

Comprehension questions

14.4 Why measure organisational performance? LO1

14.5 What is the balanced scorecard framework? LO1

14.6 What is the main criticism of the balanced scorecard framework? LO1

14.7 Discuss the four types of responsibility centres. LO2

14.8 What is a division? What is the purpose of divisions? List the nature a division can

take, and the various organisational structures divisions can form. LO2

14.9 What are the three purposes of preparing divisional performance reports? LO2

14.10 List some typical goals and performance measures for a balanced scorecard. LO3

14.11 List the formulas for the three basic financial performance indicators used to measure

divisional performance. LO3

14.12 Describe economic value added (EVA). LO3

14.13 List the advantages and disadvantages of ROI, RI and EVA. LO3

14.14 Identify the three categories of environmental indicators as outlined by ISO 14031. LO4

14.15 List the principles espoused by the United Nations Division for Sustainable Development

when designing an environmental performance system. LO4

14.16 Explain the concept of eco-efficiency. LO4

14.17 Describe the types of regulation in Australia governing greenhouse gas emissions. LO4

14.18 Outline the concept of a cap and trade scheme in relation to CO 2 reduction. LO4

14.19 Outline the reason for implementing a team-based reward structure and the disadvantages

in doing so. LO5

14.20 Outline the advantages and disadvantages in using non-financial performance indicators. LO6

14.21 Discuss the basic principles in choosing non-financial performance indicators. LO6

Exercises

 BASIC |   MODERATE |    CHALLENGING

14.22  LO2

A division of a global multinational company reports sales of $675 000, variable costs of

$300 000, traceable fixed costs of $187 500, allocated regional common costs of $75 000 and

allocated corporate costs of $37 500. Prepare a divisional performance report.

14.23  LO2

Cushions Ltd has three divisions: Hard, Medium and Soft. Corporate expenses of $36 000 are

allocated to divisions based on sales. Data for the current quarter are as follows.

Sales Direct variable costs Direct fixed costs

Hard $36 000 $21 600 $ 6 000

Medium 60 000 30 000 8 400

Soft 48 000 24 000 12 000

Required

Prepare a division performance report using a format similar to table 14.3.

14.24  LO3

You have been presented with a proposal to invest $200 000 into a company (using $100 000 of

borrowed funds). In the first year of operations, the net operating profit after tax is expected to be

approximately $46 000 in total. No shift in debt or equity is expected over the three years. The

WACC is calculated at 13 per cent.

Calculate the EVA.