Chapter 11: Performance measurement in decentralized organizations. Exercise 1 (
ID: 2460533 • Letter: C
Question
Chapter 11: Performance measurement in decentralized organizations.
Exercise 1 (7 pts): Cost-Volume-Profit Analysis and Return on Investment (ROI)
Posters.com is a small Internet retailer of high-quality posters. The company has $1,000,000 in operating assets and fixed expenses of $150,000 per year. With this level of operating assets and fixed expenses, the company can support sales of $3,000,000 per year. The company’s contribution margin ratio is 25%, which means that an additional dollar of sales results in an additional contribution margin, and net operating income, of 25 cents.
Required
Complete the following table showing the relation between sales and return on investment (ROI). [6 pts]
(Please, show your work in the space below the table.)
Sales
Net Op. Income
Average Operating Assets
ROI
$2,500,000
$1,000,000
$2,600,000
$1,000,000
$2,700,000
$1,000,000
$2,800,000
$1,000,000
$2,900,000
$1,000,000
$3,000,000
$1,000,000
What happens to the company’s return on investment as sales increase? Explain. [1 pts]
Exercise 2 (14 pts): Measures of Internal Business Process Performance.
DataSpan, Inc. automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving towards Lean Production. Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations.
4-Month Period
Month 1
Month 2
Month 3
Month 4
Throughput time (days)
Delivery cycle time (days)
Manufacturing cycle efficiency (MCE)
Percentage of on-time deliveries
91%
86%
83%
79%
Total sales (units)
3,210
3,072
2,915
2,806
Management has asked for your help in computing throughput time, delivery cycle time, and MCE. The following average times have been logged over the last four months:
Average per Month (in days)
Month 1
Month 2
Month 3
Month 4
Move time per unit
0.4
0.3
0.4
0.4
Process time per unit
2.1
2.0
1.9
1.8
Wait time per order before start of production
16.0
17.5
19.0
20.5
Queue time per unit
4.3
5.0
5.8
6.7
Inspection time per unit
0.6
0.7
0.7
0.6
Required:
For each month, compute the following:
The throughput time (4 pts)
The MCE (4 pts)
The delivery cycle time (4 pts)
Sales
Net Op. Income
Average Operating Assets
ROI
$2,500,000
$1,000,000
$2,600,000
$1,000,000
$2,700,000
$1,000,000
$2,800,000
$1,000,000
$2,900,000
$1,000,000
$3,000,000
$1,000,000
Explanation / Answer
Sales Conribution Margin Fixed Expenses Net Op. Income Average Operating Assets ROI $2,500,000 625,000 150,000 475,000 $1,000,000 47.50% $2,600,000 650,000 150,000 500,000 $1,000,000 50.00% $2,700,000 675,000 150,000 525,000 $1,000,000 52.50% $2,800,000 700,000 150,000 550,000 $1,000,000 55.00% $2,900,000 725,000 150,000 575,000 $1,000,000 57.50% $3,000,000 750,000 150,000 600,000 $1,000,000 60.00% Average per Month (in days) Month 1 Month 2 Month 3 Month 4 VALued added /non Value added a Move time per unit 0.4 0.3 0.4 0.4 Non Value added b Process time per unit 2.1 2 1.9 1.8 Non Value added c Wait time per order before start of production 16 17.5 19 20.5 d Queue time per unit 4.3 5 5.8 6.70 Non Value added e Inspection time per unit 0.6 0.7 0.7 0.6 Non Value added Throughput Time= Process Time+Move time+Queue Time+Inspection Time Delivery cycle time (days) = Wait Time +Through put Time MCE= Value Added Time(Process Time)/ Throughput Time 4-Month Period Month 1 Month 2 Month 3 Month 4 Throughput time (days) 7.4 8 8.8 9.5 Delivery cycle time (days) 23.4 25.5 27.8 30 Manufacturing cycle efficiency (MCE) 28.38% 25.00% 21.59% 18.95% Percentage of on-time deliveries 91% 86% 83% 79% Total sales (units) 3,210 3,072 2,915 2,806
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