Question

1. The production department is proposing the purchase of an automatic insertion machine. It has identified three machines and has asked the accountant to analyze them to determine which one has the best average rate of return.

	Machine A		Machine B		Machine C
Estimated average income	$45,667.58		$75,151.50		$71,661.30
Average investment	326,197.00		250,505.00		477,742.00

a. Machine C

b. Machine B

c. Machine A

d. Machines B and C have the same preferred average rate of return.

2.

Motivated reasoning, surrogation, and common measures bias are three terms describing

a. cognitive or psychological biases that may impact decision making with the balanced scorecard

b. mission-focused metrics commonly used in the implementation of the balanced scorecard

c. three perspectives of the balanced scorecard

d. strategic initiatives within the balanced scorecard framework

Answer 1

1. For solving this question, we need to calculate the average rate of return of the machines:

Formula for average rate of return = (Average Income/ Average Investment) * 100

Hence, the correct answer is Option B (Machine B) since it has highest return of 30%.

2. The correct answer is Option A.

Motivated Reasoning, surrogation and common measures bias are cognitive or psychological biases that may impact decision making with the balanced scorecard approach.

Balanced Scorecard approach focuses on customer, financial, internal business, learning & growth perspectives. The four perspectives cover the interest of shareholders, customers and employees. While achieving these objectives, the company assigns some metrics in order to evaluate let's say customer satisfaction in case of a banking industry. While measuring customer satisfaction, we are considering their waiting time in a bank as one of the parameters. Now, while addressing this parameter, the focus shifts eventually on reducing waiting time rather than providing superior customer service. This may result in organisation reducing the waiting time and poorly servicing the customers. This whole scenario is an example of surrogation which is hereby affecting the decision making in the balanced scorecard.