EXERCISE 10-15 (CONTINUED) ALTERNATIVE SOLUTION

4. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH10 STANDARD COST AND THE BALANCE SCORECARD 4. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH10 STANDARD COST AND THE BALANCE SCORECARD
SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH10 STANDARD COST AND THE BALANCE SCORECARD
4. As stated above, ratios can be improved by changing either the numera-tor or the denominator. Managers who are under pressure to increase the revenue per employee may find it easier to eliminate employees than to increase revenues. Of course, eliminating employees may reduce total revenues and total profits, but the revenue per employee will in-crease as long as the percentage decline in revenues is less than the percentage cut in number of employees. Suppose, for example, that a manager is responsible for business units with a total of 1,000 employ-ees, $120 million in revenues, and profits of $2 million. Further suppose that a manager can eliminate one of these business units that has 200 employees, revenues of $10 million, and profits of $1.2 million. Before eliminating the business unit After eliminating the business unit Total revenue ... $120,000,000 $110,000,000 Total employees... 1,000 800 Revenue per employee ... $120,000 $137,500 Total profits... $2,000,000 $800,000 As these examples illustrate, performance measures should be selected with a great deal of care and managers should avoid placing too much emphasis on any one performance measure. Problem 10-30 (30 minutes)