Question

In: Accounting

Ariel Tax Services prepares tax returns for individual and corporate clients. As the company has gradually...

Ariel Tax Services prepares tax returns for individual and corporate clients. As the company has gradually expanded to 10 offices, the founder, Max Jacobs, has begun to feel as though he is losing control of operations. In response to this concern, he has decided to implement a performance measurement system that will help control current operations and facilitate his plans of expanding to 20 offices.

Jacobs describes the keys to the success of his business as follows:

“Our only real asset is our people. We must keep our employees highly motivated and we must hire the 'cream of the crop.' Interestingly, employee morale and recruiting success are both driven by the same two factors—compensation and career advancement. In other words, providing superior compensation relative to the industry average coupled with fast-track career advancement opportunities keeps morale high and makes us a very attractive place to work. It drives a high rate of job offer acceptances relative to job offers tendered.”

“Hiring highly qualified people and keeping them energized ensures operational success, which in our business is a function of productivity, efficiency, and effectiveness. Productivity boils down to employees being billable rather than idle. Efficiency relates to the time required to complete a tax return. Finally, effectiveness is critical to our business in the sense that we cannot tolerate errors. Completing a tax return quickly is meaningless if the return contains errors.”

“Our growth depends on acquiring new customers through word-of-mouth from satisfied repeat customers. We believe that our customers come back year after year because they value error-free, timely, and courteous tax return preparation. Common courtesy is an important aspect of our business! We call it service quality, and it all ties back to employee morale in the sense that happy employees treat their clients with care and concern.”

“While sales growth is obviously important to our future plans, growth without a corresponding increase in profitability is useless. Therefore, we understand that increasing our profit margin is a function of cost-efficiency as well as sales growth. Given that payroll is our biggest expense, we must maintain an optimal balance between staffing levels and the revenue being generated. As I alluded to earlier, the key to maintaining this balance is employee productivity. If we can achieve cost-efficient sales growth, we should eventually have 20 profitable offices!”

Required:

Create a balanced scorecard for Ariel Tax Services. Link your scorecard measures using the framework from Exhibit 9–5. Indicate whether each measure is expected to increase or decrease.

Solutions

Expert Solution

(1) Balance score Card Diagram

Solution (2) Hypothesis

a. Compensation paid above industry average increases then % of job offers increases and morale will increase

b. Average number of years for promotion decreases then employee morale increases and number of job accepted increases.

c. If number of job accepted increases then ratio of billable hour to total hours increases. Error in preparing return decreases and average time to prepare return decreases.

d. Employee morale increase will increase customer satisfaction and ratio of billable to total hours increases and error in preparation of return decreases and time taken to prepare the return decreases.

e. If ratio of billable to total hours increases then revenue per employee also increases.

f. If number of errors in tax return decreases then customer satisfaction will increase.

g. If time to prepare return decreases then customer satisfaction will increase.

h. If Customer satisfaction increases then number of new customers increases.

i. If new customers increases than sales increases.

j. If revenue per employee and sales increases than profit increases.

k.


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