ABMC3084 Information for control and decision making

Tutorial 10: Performance Measurement & Control

QUESTION 1
Companies A and B are both involved in retailing.
Relevant information for the year ended 31 May 2012 was provided as follows:
Company A Company B
RM’000 RM’000
Sales revenue 50,000 200,000
Profit before tax 10,000 10,000
Capital employed 50,000 50,000
Required:
Prepare the following ratios for both companies and comment on the results:
(a) ROCE (Ans: Co A=20 %, Co B=20 %)
(b) Profit margin (Ans: Co A=20 %, Co B=5 %)
(c) Asset turnover (Ans: Co A=1, Co B=4)

QUESTION 2
Calculate the liquidity and working capital ratios for Company LNG for the year
ended 31 March 2012:
RM’ million
Sales revenue 1,867.5
Gross profit 489.3
Inventory 147.9
Trade receivables 393.4
Trade payables 275.1
Cash 53.8
Short-term investments 6.2
Other current liabilities 284.3

Ans:
Current ratio=1.07
Quick ratio=0.81
Receivables collection period=77 days
Inventory turnover period=39 days
Payables payment period=73 days

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 ABMC3084 Information for control and decision making

QUESTION 3
Discuss the behavioural issues which may arise if a company measures the managerial
performance on the basis of a target ROCE.

Question 4:
(a) Outline THREE (3) problems that are commonly faced by organizations that use
financial performance indicators to monitor the performance of their organization.

(b) Outline THREE (3) methods of overcoming the problems highlighted in your
answer to part (a) above.

(c) The balanced scorecard approach may be applied to measure performance of

organizations.
Required:
(i) Explain the balanced scorecard approach.

(ii) Outline TWO (2) problems associated with the use of the balanced
scorecard approach for organizational performance measurement.

QUESTION 5
Suggest some measures of dimension under Fitzgerald and Moon’s BUILDING
BLOCKS model for a national car dealership network .

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QUESTION 6
A fast food restaurant specialises in high quality, moderately priced Japanese dishes.
The management has recently decided to implement a balanced scorecard approach.
Suggest suitable key performance indicators (KPIs) for each critical success factor
(CSF) identified from different perspectives as follows:

Customer perspective:
 New products
 Responsive service
 Preferred suppliers
 Partnership ventures

Internal perspective:
 Process excellence
 Design productivity
 New product development
Innovation and learning perspective:
 Time to market
 Product focus
 Process learning
 Technology leadership

Financial perspective:
 Survival
 Success
 Prosperity

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Answer to QUESTION 5
Dimension Measures
Competitive performance: -Sales growth from time to time (weekly, monthly,
quarterly, yearly).
-Local and national market shares (car registration,
published market research data. etc).
-Acquisition of new business, increased number of
customers.

Financial performance: -Profit per dealer, by location, average profit margin,

average discount as % of displayed list price, financial
ratios, variances etc.

Quality of service: -Post-sale satisfaction surveys of customers.

-Complaints for courtesy and competence.
-Consultants posing as customers visit or ring the dealers’
shops.

Flexibility: -Post-sale satisfaction surveys of customers on delivery

time of cars ordered, response to precise customer
specifications, etc.

Resource utilisation: -Sales per employee.

-Sales per square meter of floor space.
-Average time a second hand car remains unsold.

Innovation: -Central inspection on product quality and continuous

improvement.
-Post-sale customer satisfaction surveys on product
differentiation

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Answer to QUESTION 6
Critical success factor (CSF)
Customer perspective:
 New products
 Responsive service
 Preferred suppliers
 Partnership ventures
Internal perspective:
 Process excellence
 Productivity
 New product development
Innovation and learning perspective:
 Time to market
 Product focus
 Process learning
 Innovation leadership
Financial perspective:
 Survival
 Success
 Prosperity
Key performance indicators (KPIs)
- % of sales from new products
- % of on-time delivery
- customer ranking
- number of co-operative operations
- process cycle time, unit cost
- material and labour efficiency, idle time
- introduction time, actual versus plan
- introduction time, actual versus plan
- % of products contributing 80% of sales
- process time to maturity
- time to develop innovative products
- cash flow
- quarterly sales growth and operating income
- increase in market share