Solution manual managerial accounting concept and applications by cabrera chapter 23 answer

MANAGEMENT ACCOUNTING - Solutions Manual

CHAPTER 23
STRATEGIC COST MANAGEMENT;
BALANCED SCORECARD
I.

Questions
1.
Strategy
Cost leadership
Differentiation

Focus

Weakness
The tendency to cut costs in a way that
undermines demand for the product or service.
The firm’s tendency to undermine its strength by
attempting to lower costs or by lacking a
continual and aggressive marketing plan to
reinforce the perceived difference.
The market niche may suddenly disappear due to
technological change in the industry or change in
consumer tastes.

2. The balanced scorecard is an accounting report that includes the firm’s
critical success factors in four areas: customer satisfaction, financial
performance, internal business processes, and innovation and learning
(human resources). The primary objective of the balanced scorecard is
to serve as an action plan, a basis for implementing the strategy

expressed in the critical success factors.
3. The balanced scorecard is important to integrate both financial and
non-financial information into management reports.
Financial
measures reflect only a partial- and short-term measure of the firm’s
progress. Without strategic non-financial information, the firm is likely
to stray from its competitive course and to make strategically wrong
product decisions – to choose the wrong products, the wrong
customers. The balanced scorecard provides a basis for a more
complete analysis than is possible with financial data alone.
4. An analyst can incorporate other factors such as the growth in the
overall market and reductions in selling prices resulting from
productivity gains into a strategic analysis of operating income. To do
so, the analyst attributes the sources of operating income changes to
the particular factors of interests. For example, the analyst will
combine the operating income effects of strategic price reductions and
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Chapter 23 Strategic Cost Management; Balanced Scorecard

any resulting growth with the productivity component to evaluate a
company’s cost leadership strategy.
5. A company’s balanced scorecard should be derived from and support
its strategy. Since different companies have different strategies, their
balanced scorecards should be different.
6. The difference between the delivery cycle time and the throughput time
is the waiting period between when an order is received and when
production on the order is started. The throughput time is made up of
process time, inspection time, move time, and queue time. These four

elements can be classified between value-added time (process time)
and non-value-added time (inspection time, move time, and queue
time).
7. The balanced scorecard is constructed to support the company’s
strategy, which is a theory about what actions will further the
company’s goals. Assuming that the company has financial goals,
measures of financial performance must be included in the balanced
scorecard as a check on the reality of the theory. If the internal
business processes improve, but the financial outcomes do not improve,
the theory may be flawed and the strategy should be changed.
8. If a company has an MCE of less than 1, it means the production
process includes non-value-added time. An MCE of 0.40, for example,
would mean that 40% of the throughput time consists of actual
processing, and that the other 60% consists of moving, inspection, and
other non-value-added activities.
II. Problem (Measures of Internal Business Process Performance)
Requirement 1
a, b, and c
Month
1
Throughput time in days:
Process time....................................................
0.6
Inspection time................................................
0.7
Move time........................................................
0.5
Queue time.......................................................
3.6
Total throughput time......................................

5.4
Manufacturing cycle efficiency
(MCE):
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2

3

4

0.5
0.7
0.5
3.6
5.3

0.5
0.4
0.4
2.6
3.9

0.4
0.3
0.5
1.7
2.9

Strategic Cost Management; Balanced Scorecard Chapter 23

11.1%
9.4%
Process time  Throughput
time..................................................................

12.8%

13.8%

5.3
3.9
9.2

4.7
2.9
7.6

Delivery cycle time in days:
Wait time.........................................................
9.6
8.7
Total throughput time......................................
5.4
5.3
Total delivery cycle time................................
15.0
14.0
Requirement 2

The general trend is favorable in all of the performance measures except for
total sales. On-time delivery is up, process time is down, inspection time is
down, move time is basically unchanged, queue time is down,
manufacturing cycle efficiency is up, and the delivery time is down. Even
though the company has improved its operations, it has not yet increased
its sales. This may have happened because management attention has been
focused on the factory – working to improve operations. However, it may
be time now to exploit these improvements to go after more sales – perhaps
by increased product promotion and better marketing strategies. It will
ultimately be necessary to increase sales so as to translate the operational
improvements into more profits.
Requirement 3
a and b

Month
Throughput time in days:
Process time....................................................
Inspection time................................................
Move time........................................................
Queue time.......................................................
Total throughput time......................................

Manufacturing cycle efficiency (MCE):
Process time  Throughput time.................

5

6

0.4
0.3
0.5

0.4

1.2

0.9

33.3%

44.4%

0.5

As a company pares away non-value-added activities, the manufacturing
cycle efficiency improves. The goal, of course, is to have an efficiency of
100%. This will be achieved when all non-value-added activities have
been eliminated and process time equals throughput time.
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Chapter 23 Strategic Cost Management; Balanced Scorecard

III. Multiple Choice Questions
1.
2.
3.
4.

5.

D
D
C
A
A

6.
7.
8.
9.
10.

C
D
C
D
A

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