EXERCISE 10-15 (CONTINUED) ALTERNATIVE SOLUTION

3. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH10 STANDARD COST AND THE BALANCE SCORECARD 3. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH10 STANDARD COST AND THE BALANCE SCORECARD 3. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH10 STANDARD COST AND THE BALANCE SCORECARD
SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH10 STANDARD COST AND THE BALANCE SCORECARD
3. The hypotheses underlying the balanced scorecards are indicated by the arrows in each diagram. Reading from the bottom of each balanced scorecard, the hypotheses are: Applied Pharmaceuticals o If the dollars invested in engineering technology increase, then the R&D yield will increase. o If the percentage of job offers accepted increases, then the R&D yield will increase. o If the dollars invested in engineering training per engineer increase, then the R&D yield will increase. o If the R&D yield increases, then customer perception of first-to-market capability will increase. o If the defects per million opportunities decrease, then the customer perception of product quality will increase. o If the customer perception of first-to-market capability increases, then the return on stockholders’ equity will increase. o If the customer perception of product quality increases, then the re-turn on stockholders’ equity will increase. Destination Resort International o If the employee turnover decreases, then the percentage of error-free repeat customer check-ins and room cleanliness will increase and the average time to resolve customer complaints will decrease. o If the number of employees receiving database training increases, then the percentage of error-free repeat customer check-ins will in-crease. o If employee morale increases, then the percentage of error-free re-peat customer check-ins and room cleanliness will increase and the average time to resolve customer complaints will decrease. o If the percentage of error-free repeat customer check-ins increases, then the number of repeat customers will increase. o If the room cleanliness increases, then the number of repeat custom-ers will increase. Problem 10-20 (continued) Each of these hypotheses is questionable to some degree. For example, in the case of Applied Pharmaceuticals, R&D yield is not the sole driver of the customers’ perception of first-to-market capability. More specifi-cally, if Applied Pharmaceuticals experimented with nine possible drug compounds in year one and three of those compounds proved to be successful in the marketplace it would result in an R&D yield of 33%. If in year two, it experimented with four possible drug compounds and two of those compounds proved to be successful in the marketplace it would result in an R&D yield of 50%. While the R&D yield has increased from year one to year two, it is quite possible that the customer’s per-ception of first-to-market capability would decrease. The fact that each of the hypotheses mentioned above can be questioned does not invali-date the balanced scorecard. If the scorecard is used correctly, man-agement will be able to identify which, if any, of the hypotheses are in-valid and the balanced scorecard can then be appropriately modified. Problem 10-21 (30 minutes)