215 ch 11

ROI

equals net operating income/average operating assets AND equals MARGIN * TURNOVER

Margin

equals net operating income/sales (measures profitability)

nonfinancial

financial measures focus on the results of various activities, while ___ measures focus on what drives organizational performances.

operating assets

includes cash, AR, inventory, PP&E, and all other assets held for operating purposes.the average of this is computed as the average of the beginning and ending balances of the assets

net operating income

income before interest and taxes, sometimes referred to as EBIT

MCE

manufacturing cycle efficiency, computed by dividing value-added time( process) by throughput time (manu. cycle)

performance measures

the balanced scorecard enables top management to translate its strategy into four groups of ___ ____-financial measures, customer satisfaction, internal business processes and learning & growth --that employees can understand and influence

throughput time

(also called manufacturing cycle time) is the amount of time required to turn Raw Materials into Finished Products (goods). includes process, inspection, move and queue time.

criticisms of ROI

1.managers may not know how to increase ROI in a manner that is consistent with the company's strategy 2. a manager who takes over a business segment typically inherit many committed costs over which the manager has no control. this may make it difficult to assess this manager relative to other managers. 3. a manager who is evaluated based on ROI may reject investment pops that are profitable for the whole company but that would have a negative impact on the manager's performance evaluation

process

__ time is the only value-added time

gross cost

an alternative to net book value is the ___ ___ of an asset, which ignores accum dep. with this approach, ROI does not grow automatically over tie. replacing a fully-depreciated asset does not adversely affect ROI.

balanced scorecard

consists of an integrated set of performance measures that are derived from and support a company's strategy. importantly, the measures included in a company's balanced scorecard are unique to its specific strategy.

net book value

most companies use this value of depreciable assets to calculate avg op assets. equal to acquisition cost - accumulated depreciation. With this approach, ROI increases over time as accum. sep increases.replacing a fully depreciated asset with a new asset with decrease ROI

responsibility center

refers to any part of an organization whose manager has control over, and is accountable for cost, profit or investments. the three primary types are cost, profit, and investment centers

Turnover

sales/average operating assets (measures asset turnover)

delivery cycle time

the elapsed time from when a customer order is received to when the completed order is shipped

profit

the manager of a ___ center has control over both costs and revenues. they are often evaluated by comparing actual profit to targeted or budgeted profit

cost, standard cost

the manager of a ___ center has control over cost, but not revenues or investment funds. _____ ____ variances and flexible budget variances are often used to evaluate cost center performance.

investment

the manager of an __ center has control over costs, revenues, and investments in operating assets. they usually are evaluated using ROI or residual income.

residual income

the net operating income that an investment center earns above the minimum required return on its assets. equal to the NOI - AOA(Minimum Req. ROI)