Questions:
1. What are the benefits of organizational mission and values statements? How are organizational missions and strategies related to performance measures?
2. Why is performance measurement important to the success of businesses? Should performance measures be qualitative, quantitative, or both? Justify your answer. For performance measurements to be meaningful, why is it necessary to establish benchmarks?
3. What benefits can be gained by allowing a manager to participate in developing the performance measures that will be used to assess that manager's performance?
4. On what basis should the performance of a responsibility center be measured? What are the traditional financial performance measures for each type of responsibility center? Why can the same quantitative measures of performance not be used for all types of responsibility centers?
5. How can cash flow be used as a performance measure? In what ways is cash flow a relatively stronger or weaker performance measure than accrual measures such as segment income?
6. The president of Toys for Boys evaluates the performance of Annie and Andy, the divisional managers, on the basis of a variety of net income measures. Drew, the controller, informs the president that such measures could be misleading. What are the major concerns in defining the "income" measures? Are internal or external measures more susceptible to manipulation? Explain.
7. What is residual income, and how is it used to measure divisional performance? How is it similar to, and different from, the return on investment measure? How is residual income similar to, and different from, economic value added? How is economic value added superior to residual income as a performance measure?
8. In designing a performance measurement system, why should managerial rewards be linked to performance measures? Why would an effective compensation strategy treat top managers, middle managers, and other workers differently?