Question

In: Accounting

Which of the following is FALSE about the balanced scorecard and its underlying logic? A. The...

  1. Which of the following is FALSE about the balanced scorecard and its underlying logic?

    A.

    The balanced scorecard enables top management to translate its strategy into performance measures that employees can understand and influence.

    B.

    The balanced scorecard consists of an integrated set of performance measures that are derived from and support a company’s strategy.

    C.

    A company’s ability to change and improve determines its ability to have efficient internal business processes.

    D.

    A company’s financial results determine the level of customer satisfaction for its goods and services.

  2. Division A of XYZ Co. produces units that can either be sold to outside customers or transferred to XYZ’s Division B. The following data are available from the last year:

                Division A

                            Production capacity in units                                        20,000

                            Selling price per unit to outside customers                   $25

                            Variable cost per unit                                                      $15

                            Total fixed production and selling costs   $80,000

                Division B

                            Number of units needed annually 4,000

                            Price per unit paid to an outside supplier $18

    If the Division A can sell all 20,000 units annually to outside customers, what is the lowest acceptable transfer price from Division A’s standpoint on each of the 4,000 units?

    A.

    $15

    B.

    $19

    C.

    $18

    D.

    $25

  3. XYZ Co. manufactures two types of toilet paper: ultra-strong and ultra-soft. Because of a recent shortage of chlorine-based bleach, a key ingredient needed for the two products, the company has to decide what amount of each product would be most advantageous to produce. Information related to the two products that use chlorine-based bleach are shown below:

    Ultra-strong

    Ultra-soft

    Contribution margin per case

    $25

    $28

    Contribution margin ratio

    50%

    70%

    Chlorine-based bleach required per case (in liters)

    5

    7

    Maximum monthly demand (in cases)

    unlimited

    unlimited

    Assume that XYZ Co. only has 3,500 liters of Chlorine-based bleach available next month. What is the maximum amount of contribution margin that the company can generate next month from the two products above given the shortage of Chlorine-based bleach?

    A.

    $19,250

    B.

    $14,000

    C.

    $15,750

    D.

    $17,500

  4. Which of the following is FALSE?

    A.

    With a constrained resource, total contribution margin is maximized if the company promotes the product that has the highest contribution margins per unit of the constraining resource.

    B.

    For a make or buy decision, the opportunity cost of making a product would be the profits that could have been derived from the best alternative use of the facilities being used to make the product.

    C.

    When analyzing a special order, only the incremental costs and benefits are relevant.

    D.

    Joint costs are relevant in decisions regarding whether a product should be processed further or sold as is at the split-off point.


Solutions

Expert Solution

1) Answer:

The statement that is wrong about the balanced scorecard is

(D) A company’s financial results determine the level of customer satisfaction for its goods and services

Reason: According to the Balanced Scorecard approach, Financial results determine if the company's strategy, implementation, and execution are contributing to bottom-line improvement. Customer satisfaction is a different perspective in the Balanced Scorecard approach,

2) Answer: D) $ 25

Reason

If the Division A can sell all 20,000 units annually to outside customers, then the answer is D) $ 25. This is because when all the units can be sold outside, the opportunity cost is involved and hence it should be $ 25 if it wants to sell to Division B which will be its opportunity cost

3) Answer: D) $17,500

Reason:

In the given case of XYZ Co, since Chlorine is in shortage. Hence, contribution per litre of Chlorine has to be calculated and the product which has  high contribution per litre of chlorine has to be selected

Ultra Strong Ultra Soft
Contribution margin per case ---(a) 25 28
Number of litres Chlorine required -- (b) 5 7
Contribution margin per liter of Chlorine --- (a)/(b) 5 4

Since the contribution margin per litre of Ultra Strong toilet paper is higher and the demand is unlimited, the XYZ Co should produce and sell only Ultra Strong

Given that there are 3500 litres of Chlorine

Hence, the contribution margin that can be generated by producing only ultra Strong = $ 17500 ((3500 litres * $5 per litre)

4) Answer (D) Joint costs are relevant in decisions regarding whether a product should be processed further or sold as is at the split-off point.

Reason:

The statement is false as the joint costs are irrelevant and only separate costs are relevant in making a decision whether a product should be processed further or sold as is at the split-off point.


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