Chapter 13, Problem 21P

At the end of 20x1, Mejorar Company implemented a low-cost strategy to improve its competitive position. Its objective was to become the low-cost producer in its industry. A Balanced Scorecard was developed to guide the company toward this objective. To lower costs, Mejorar undertook a number of improvement activities such as JIT production, total quality management, and activity-based management. Now, after two years of operation, the president of Mejorar wants some assessment of the achievements. To help provide this assessment, the following information on one product has been gathered:

Required:

1. 1. Compute the following measures for 20x1 and 20x3:
   1. a. Actual velocity and cycle time
   2. b. Percentage of total revenue from new customers (assume one unit per customer)
   3. c. Percentage of very satisfied customers (assume each customer purchases one unit)
   4. d. Market share
   5. e. Percentage change in actual product cost (for 20x3 only)
   6. f. Percentage change in days of inventory (for 20x3 only)
   7. g. Defective units as a percentage of total units produced
   8. h. Total hours of training
   9. i. Suggestions per production worker
   10. j. Total revenue
   11. k. Number of new customers
2. 2. For the measures listed in Requirement 1, list likely strategic objectives, classified according to the four Balance Scorecard perspectives. Assume there is one measure per objective.

To determine

Compute the actual velocity and cycle time for 20x1 and 20x3.

Explanation of Solution

Cycle time and velocity: “Cycle time and velocity are two operational “measures of responsiveness”. Cycle time is the spans of time taken to produce a unit of output from the time of receipt of materials till the good is supplied to finished goods inventory. Therefore, cycle time is the time taken to produce a product”. Velocity is the number of units of output that could be produced within a given period of time”

Strategy Translation: Strategy translation is the process of specifying objectives, measures, targets, and initiatives for each individual perspective. Strategic focus is created by translating the organizations’ strategy into operational objectives and performance measures for four different perspectives.

Calculate actual velocity for 20x1:

$\begin{array}{c}\text{Actual}\text{velocity}\text{=}\frac{\text{Actual}\text{production}}{\text{Production}\text{hours}\text{available}\text{for}\text{40}\text{workers}}\\ \text{=}\frac{\text{208,000}\text{units}}{\text{104,000}\text{hours}}\\ \text{=}\text{2}\text{units}\text{per}\text{hour}\end{array}$

Calculate cycle time for 20x1:

$\begin{array}{c}\text{Cycle}\text{time}\text{=}\frac{\text{Time}\text{taken}}{\text{Units}\text{produced}}\\ \text{=}\frac{\text{60}\text{minutes}}{\text{2}\text{units}\text{per}\text{hour}}\\ \text{=}\text{30}\text{minutes}\text{per}\text{unit}\end{array}$

Calculate actual velocity for 20x3:

$\begin{array}{c}\text{Actual}\text{velocity}\text{=}\frac{\text{Actual}\text{production}}{\text{Production}\text{hours}\text{available}\text{for}\text{40}\text{workers}}\\ \text{=}\frac{\text{234,000}\text{units}}{\text{104,000}\text{hours}}\\ \text{=}\text{2}\text{.25units}\text{per}\text{hour}\end{array}$

Calculate cycle time for 20x3:

$\begin{array}{c}\text{Cycle}\text{time}\text{=}\frac{\text{Time}\text{taken}}{\text{Units}\text{produced}}\\ \text{=}\frac{\text{60}\text{minutes}}{2.25\text{units}\text{per}\text{hour}}\\ \text{=}26.67\text{minutes}\text{per}\text{unit}\end{array}$

To determine

Calculate percentage of total revenue from new customers:

Explanation of Solution

Calculate percentage of total revenue from new customers during 20x1:

$\begin{array}{c}\begin{array}{l}\text{Percentage of total }\\ \text{revenue from new customers}\end{array}\}\text{=}\frac{\text{Number}\text{of}\text{new}\text{customers}}{\text{Actual}\text{production}}\\ \text{=}\frac{\text{5,200}}{\text{208,000}\text{units}}\\ \text{=}\text{2}\text{.5}\text{\%}\text{or}\text{0}\text{.025}\end{array}$

Calculate percentage of total revenue from new customers during 20x3:

$\begin{array}{c}\begin{array}{l}\text{Percentage of total }\\ \text{revenue from new customers}\end{array}\}\text{=}\frac{\text{Number}\text{of}\text{new}\text{customers}}{\text{Actual}\text{production}}\\ \text{=}\frac{\text{26,000}}{\text{234,000}\text{units}}\\ \text{=}11.1\text{\%}\text{or}\text{0}\text{.111}\end{array}$

To determine

Calculate the percentage of satisfied customers.

Explanation of Solution

Calculate the percentage of satisfied customers for 20x1:

$\begin{array}{c}\begin{array}{l}\text{Percentage of }\\ \text{satisfied customers}\end{array}\}\text{=}\frac{\text{Very}\text{satisfied}\text{customer}}{\text{Actual}\text{production}}\\ \text{=}\frac{\text{83,200}}{\text{208,000}}\\ \text{=}\text{40}\text{\%}\end{array}$

Calculate the percentage of satisfied customers for 20x3:

$\begin{array}{c}\begin{array}{l}\text{Percentage of }\\ \text{satisfied customers}\end{array}\}\text{=}\frac{\text{Very}\text{satisfied}\text{customer}}{\text{Actual}\text{production}}\\ \text{=}\frac{\text{140,400}}{\text{234,000}}\\ \text{=}60\text{\%}\end{array}$

To determine

Calculate value of market share.

Explanation of Solution

Calculate value of market share for 20x1:

$\begin{array}{c}\text{Market}\text{share}\text{=}\frac{\text{Actual}\text{production}}{\text{Market}\text{size}\text{in}\text{units}\text{sold}}\\ \text{=}\frac{\text{208,000}}{\text{1,300,000}}\\ \text{=}\text{16\%}\end{array}$

Calculate value of market share for 20x3:

$\begin{array}{c}\text{Market}\text{share}\text{=}\frac{\text{Actual}\text{production}}{\text{Market}\text{size}\text{in}\text{units}\text{sold}}\\ \text{=}\frac{\text{234,000}}{\text{1,300,000}}\\ \text{=}\text{18\%}\end{array}$

To determine

Calculate percentage change in actual product cost for 20x3.

Explanation of Solution

Calculate percentage change in actual product cost for 20x3.

$\begin{array}{c}\begin{array}{l}\text{Percentage change in }\\ \text{actual product cost for 20x3}\end{array}\}\text{=}\frac{\left(\begin{array}{l}\text{Hours}\text{of}\text{training}\text{during}\text{20x1}\\ -\text{Actual}\text{cost}\text{per}\text{unit}\text{during}\text{20x1}\end{array}\right)}{\text{Hours}\text{of}\text{training}\text{during}\text{20x1}}\\ \text{=}\frac{\text{\$260}-\text{\$325}}{\text{\$325}}\\ \text{=}\text{20\%}\end{array}$

To determine

Calculate percentage change in days of inventory for 20x3.

Explanation of Solution

Calculate percentage change in days of inventory for 20x3:

$\begin{array}{c}\begin{array}{l}\text{Percentage change in }\\ \text{days of inventory for 20x3}\end{array}\}\text{=}\frac{\left(\begin{array}{l}\text{Days}\text{of}\text{inventory}\text{for}\text{20x3}-\\ \text{Days}\text{of}\text{inventory}\text{for}\text{20x1}\end{array}\right)}{\text{Days}\text{of}\text{inventory}\text{for}\text{20x1}}\\ \text{=}\frac{\left(\text{7}\text{.8}-\text{15}\text{.6}\right)}{\text{15}\text{.6}}\\ \text{=}\text{50\%}\end{array}$

To determine

Calculate the defective units as a percentage of total units produced.

Explanation of Solution

Calculate the defective units as a percentage of total units produced for 20x1:

$\begin{array}{c}\begin{array}{l}\text{Defective units as a percentage}\\ \text{ of total units produced}\end{array}\}\text{=}\frac{\text{Number}\text{of}\text{defective}\text{units}}{\text{Actual}\text{production}}\\ \text{=}\frac{\text{13,000}}{\text{208,000}}\\ \text{=}\text{6}\text{.25\%}\end{array}$

Calculate the defective units as a percentage of total units produced for 20x3:

$\begin{array}{c}\begin{array}{l}\text{Defective units as a percentage}\\ \text{ of total units produced}\end{array}\}\text{=}\frac{\text{Number}\text{of}\text{defective}\text{units}}{\text{Actual}\text{production}}\\ \text{=}\frac{\text{5,200}}{\text{234,000}}\\ \text{=}2.22\text{\%}\end{array}$

To determine

Calculate the total hours of training.

Explanation of Solution

The total hours of training during 20x1 is 260 hours and for 20x3 is 1,040 hours.

To determine

Calculate per production worker.

Explanation of Solution

Calculate per production worker for 20x1:

$\begin{array}{c}\text{ Production worker}\text{per}\text{unit}\text{=}\frac{\text{Total}\text{worker}\text{suggestions}}{\text{Number}\text{of}\text{workers}}\\ \text{=}\frac{\text{104}}{\text{40}}\\ \text{=}\text{2}\text{.6}\text{worker}\text{per unit}\end{array}$

Calculate per production worker for 20x3:

$\begin{array}{c}\text{ Production worker}\text{per}\text{unit}\text{=}\frac{\text{Total}\text{worker}\text{suggestions}}{\text{Number}\text{of}\text{workers}}\\ \text{=}\frac{312}{\text{40}}\\ \text{=}7.8\text{worker}\text{per unit}\end{array}$

To determine

Calculate total revenue.

Explanation of Solution

Calculate total revenue during 20x1:

$\begin{array}{c}\text{Total}\text{revenue}\text{=}\text{Actual}\text{production}\text{×}\text{Selling}\text{price}\text{per}\text{unit}\\ \text{=}\text{208,000}\text{units}\text{×}\text{\$195}\\ \text{=}\text{\$40,560,000}\end{array}$

Calculate total revenue during 20x3:

$\begin{array}{c}\text{Total}\text{revenue}\text{=}\text{Actual}\text{production}\text{×}\text{Selling}\text{price}\text{per}\text{unit}\\ \text{=}\text{234,000}\text{units}\text{×}\text{\$195}\\ \text{=}\text{\$45,630,000}\end{array}$

To determine

Identify the number of new customers during 20x1 and 20x3.

Explanation of Solution

The number of new customers during 20x1 is 5,200 and for 20x3 are 26,000.

To determine

Provide strategic objective classified according to the four balance scorecard perspectives.

Explanation of Solution

Balanced Scorecard: Balanced scorecard is a management and planning strategy for organizational processes of defining the goals to be achieved, allocation of daily assignments on the basis of strategy, alignment of the projects on the basis of their priority and watchdog roles for its respective progress and achieving desired targets. Even though balances scorecards change from one firm to another firm, most have a combination of customer measures, measures of learning and growth, financial measures and internal business process measures.

Strategic Objective	Measure
Financial
Reduce unit cost	“Unit cost reduction in percentage”
Increase total revenue	“Revenue”
Develop new revenue	“Percentage of new revenues”
Customer
Increase customer satisfaction	“Percentage of very satisfied customers”
Increase customer acquisition	“Number of new customers”
Increase market share	“Market share”
Process
Decrease process time	“Cycle time/ velocity”
Decrease inventory	“Days of inventory”
Improve product quality	“Percentage defects”
Learning/Growth
Increase employee capability	“Training hours”
increase employee motivation	“Recommendations per worker”

Table (1)