Chapter 16: Operational Performance measurement

Question 1

What are the three key determinants of productivity for most organizations?

Answer 1

1. Control of waste
2. Product and manufacturing process innovation
3. Demand or resource usage fluctuations due to changes in business cycle or other reasons.

Question 2

What is operational productivity?

Answer 2

ratio of output units to the number of units of an input factor

Question 3

What is financial productivity?

Answer 3

ratio of output to dollar amount of one or more input factors

Question 4

What is partial productivity?

Answer 4

productivity measures that focus only on relationship between one of the inputs and the attained output

Question 5

What are the four limitations of partial productivity analysis?

Answer 5

1. Only measures relationship between an input resource and the output
2. Ignores effect that changes in other production factors have on productivity
3. Analysis and interpretation should include effects that changes in the firm’s operating characteristics have on productivity of input resource
4. Improved partial productivity doesn’t always mean firm operates efficiently.

Question 5

What is total productivity?

Answer 5

measures all input resources in computing ratio of output attained to input resources consumed.

Question 6

What is sales quantity variance?

Answer 6

Measures the effect of the change in number of units sold from the number of units budgeted to be sold.

Question 7

What three elements does sales quantity variance consist of?

Answer 7

1. Difference between budgeted and actual total sales
2. Budgeted sales mix of the product (percentage of total sales in units)
3. Budgeted contribution margin per unit of the product.

Question 8

What is the sales mix variance?

Answer 8

product of difference between actual and budgeted sales mix multiplied by actual total number of units all products sold and by budgeted contribution margin per unit of the product.

Question 8

What is the market size variance and how do you calculate it?

Answer 8

measure of effect of changes in total market size on the firm’s total contribution margin.
Calculated as (Actual market size in units – Budgeted market size) * Budgeted market share * Weighted-average budgeted contribution margin per unit

Question 9

What is the sales mix?

Answer 9

relative proportion in which a company’s products are sold

Question 10

What is the market share variance and how do you calculate it?

Answer 10

Comparison of the firm’s actual market share to budgeted market share and measurement of effect of changes in the firm’s market share on its total contribution margin and operating income.

Calculated as: (Actual – budgeted market share) * Total actual market size * weighted average budgeted contribution margin per unit