Zenon Computer (a fictitious company) competes at the retail level on the basis

Question

Zenon Computer (a fictitious company) competes at the retail level on the basis of customer service. It has invested significant resources in its customer service department. Recently, the company has installed a traditional activity-based costing (ABC) system to provide better-quality cost information for pricing, decision making, and customer-profitability analysis. Most of the costs of running the customer service department are considered committed (i.e., short-term fixed) costs (principally, personnel and equipment costs). The budgeted cost for the upcoming period is $800,000. Activity analysis, recently conducted when the ABC system was implemented, revealed the following information:

What nonfinancial performance indicators do you recommend Zenon Computer monitor in terms of its customer service department? In general, how are these indicators chosen? (That is, how do you justify the items you are recommending?)

Activities % of Employee Time Estimated (Budgeted) Cost-Driver Quantity Handling customer orders 75% 8,000 customer orders Processing customer complaints 10% 400 customer complaints Conducting customer credit checks 15% 500 credit checks

Explanation / Answer

Ans: Non Financial Performance Indicators are basically chosen to measure the performance indicators not attached with financial data, like, measuring of employee satisfaction, Customer satisfaction, It can also be like measuring employee retention/attrition rate, the quality of responses given to customer while handling their queries. The impact of non financial performance indicators are long term in nature and It is bascially attached with company startegy and vision.

Generally Non Financial performance indicators are chosen keeping the companies objective or departments objectand long term startegy in mind. Suppose a company's long term strategy is to be a firm which would be the best place to work, so here company may decide to choose non financial performance indicators like: What is employees satisfaction, what are the employees retention ratio, what are employees work load, How's employees relation ship with their managers, what are the overall feeling of employees about company. What are the factors that keep employees attached towards companies. So once these measures are taken they are analysed and as per the outcome company decides what company can do if they are not meeting the employees expectation. So this is how Non financial performance indicators are chosen and worked upon.

Here to Zenon, as per the ABC costing system, we saw that their major customer service sodt incurred on handling customer orders, so one non financial performance indicator we must select is timely delivery of customer orders, another would be quality delivery of customer orders (meaning customer received what they ordered). For getting this we can conduct customer survey every time product is delivered to them. Another indicator would be like Timely and quality resolution of customer complaints. another indicator would be measuing overall customer satisfaction of customer. Another we would be how quickly customers are getting their credits.

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