Balanced scorecard. isbn: 978-0-13-342870-4 Exercise 12-16, Cost Accounting, Bal

ID: 2469682 • Letter: B

Question

Balanced scorecard. isbn: 978-0-13-342870-4

Exercise 12-16, Cost Accounting, Balanced scorecard. Ridgecrest Electric manufactures electric motors. It competes and plans to grow by selling high-quality motors at a low price and by delivering them to customers quickly after receiving customers’ orders. There are many other manufacturers who produce similar motors. Ridgecrest believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy in 2013.

Required

1.Is Ridgecrest’s 2013 strategy one of product differentiation or cost leadership? Explain briefly.

2.Kearney Corporation, a competitor of Ridgecrest, manufactures electric motors with more sizes and features than Ridgecrest at a higher price. Kearney’s motors are of high quality but require more time to produce and so have longer delivery times. Draw a simple customer preference map as in Exhibit 12-1 for Ridgecrest and Kearney using the attributes of price, delivery time, quality, and design features.

3.Draw a strategy map as in Exhibit 12-2 with two strategic objectives you would expect to see under each balanced scorecard perspective.

4.For each strategic objective indicate a measure you would expect to see in Ridgecrest’s balanced scorecard for 2013.

Explanation / Answer

1. Ridgecrest’s 2012 strategy is a cost leadership strategy. Ridgecrest plans to grow by producing high-quality boxes at a low cost delivered to customers in a timely manner. Ridgecrest’s boxes are not differentiated, and there are many other manufacturers who produce similar boxes. To succeed, Ridgecrest must produce high-quality boxes at lower costs relative to competitors through productivity and efficiency improvements.

2. Solution Exhibit 13-16A shows the customer preference map for corrugated boxes for Ridgecrest and Mesa on price, timeliness, quality and design.

Solution Exhibit 13-16A

Customer Preference Map for Corrugated Boxes

3. Solution Exhibit 13-16B presents the strategy map for Ridgecrest for 2012.

Solution Exhibit 13-16B

Strategy Map for Ridgecrest for 2012

4. Measures that we would expect to see on a Ridgecrest’s balanced scorecard for 2012 are

Financial Perspective

(1) Operating income from productivity gain, (2) operating income from growth, (3) cost reductions in key areas.

These measures evaluate whether Ridgecrest has successfully reduced costs and generated growth through cost leadership.

Customer Perspective

Internal Business Process Perspective

(1) Productivity, (2) order delivery time, (3) on-time delivery, (4) number of major process improvements.

Improvements in these measures are key drivers of achieving cost leadership and are expected to lead to more satisfied customers and in turn to superior financial performance

Learning and Growth Perspective

(1) Percentage of employees trained in process and quality management, (2) employee satisfaction ratings.

Improvements in these measures aim to improve Ridgecrest’s ability to achieve cost leadership and have a cause-and-effect relationship with improvements in internal business processes, which in turn lead to customer satisfaction and financial performance.