Lecture (7)

Cost Accounting

Fall Semester 2022 / 2023

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 »chapter 4«
Balanced Score Card

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:Learning Objectives
1. Definition of Balanced Score Card
2. Four Perspectives of Performance
3. Measurements of perspectives
4. Examples on Financial perspective

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1.Definition of Balanced Score Card
• The balanced scorecard translates an
organization’s vision and strategy into
a set of performance measures that provides the
framework for implementing its strategy.
• Why is this tool called a balanced scorecard?
Because it balances the use of financial and
nonfinancial performance measures to evaluate
short-run and long-run performance in a single
report.
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 Four Perspectives of Performance.2

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 Measurements of perspectives .4
What are some of the financial perspective
measures?
1. Operating income
2. Revenue growth
3. Cost reduction
4. Return on investment

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 What are some of the customer
perspective measures?

1. Market share
2. Customer satisfaction
3. Customer retention percentage
4. Time taken to fulfill customers requests

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 What are some of the internal business perspective measures?

1. Number of new products or services

2. New product development time
3. operating capabilities
4. defect rates

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 What are some of the learning and growth perspective measures?

1. Employee education and skill level

2. Employee satisfaction scores
3. Employee turnover rates
4. Information system availability
5. Percentage of processes with advanced
controls

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 Examples on Financial perspective.5

• increase in operating income through:

1. Revenue Growth
2. Price Recovery
3. Productivity

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:Example

•Bugos Company makes a household appliance with model number

XX300. The goal for 2022 is to reduce direct materials usage per unit.
No defective units are currently produced. Manufacturing conversion
costs depend on production capacity defined in terms of XX300 units
that can be produced. The industry market size for appliances increased
5% from 2021 to 2022. The following additional data are available for
2021and 2022:
2021 2022
Units of XX300 produced and sold 10,000 10,500
Selling price $100 $95
Direct materials (square feet) 30,000 29,000
Direct material costs per square foot $10 $11
Manufacturing capacity for XX300 (units) 12,500 12,000
Total conversion costs $250,000 $240,000
Conversion costs per unit of capacity $20 $20

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:Required
1. What is operating income for 2021?
2. What is operating income for 2022?
3. Which strategy is Bugos Corporation pursuing?
4. What is the revenue effect of the growth
component?
5. What is the revenue effect of the price-
recovery component?
6. What is the cost effect productivity of direct
material on operating income ?
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1. Operating Income2021 = Revenues – Manufacturing Cost
=($100 × 10,000) - [($10 × 30,000) + ($20 × 12,500)] = $450,000

2. operating Income 2022 = Revenues – Manufacturing Cost

=($95 × 10,500) - [($11 × 29,000) + ($20 × 12,000)] = $438,500

3. Cost leadership, because the selling price decreased.

4. Revenue effect of growth component = ( units sold of second

year – units sold of first year) x selling price of first year
=(10,500 - 10,000) × $100 = $50,000
5. Revenue effect of the price-recovery component = (selling
price of second year- selling price of first year) x units sold of
second year
= ($95 - $100) × 10,500 = $52,500

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6. net effect on operating income as a result of the productivity
component = {(direct materials of second year – direct material of
sold units for 2years)x direct materials per unit of second year +
( capacity units of second year- capacity units of first year)x
Conversion costs per unit of capacity of second year}
= [(29,000 - 31,500) × $11] + [(12,000 - 12,500) × $20] = $37,500

N.B:
direct material of sold units(2 years)= (unit sold of second year/unit
sold of first year) x direct material of first year
= 30,000 × (10,500/10,000 )= 31,500

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 Assignment

 write about the fifth perspective of the

balanced score card through the following main
points:
- Definition
- Objectives
- Measurements
• Kindly mention your reference

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