Performance Management Flashcards

Which of the following describes a 'controllable cost' in the context of responsibility accounting?

Answer: A cost that can be influenced by the manager of the responsibility centre being evaluated

A controllable cost is one that the manager of a responsibility centre can directly influence through their decisions. Performance evaluation should focus on controllable costs only.

The 'learning curve' effect suggests that:

Answer: The cumulative average time per unit falls by a fixed percentage each time cumulative output doubles

The learning curve states that as cumulative production doubles, the cumulative average time (and cost) per unit falls by a fixed percentage, reflecting workers becoming more efficient.

Which of the following is NOT a financial performance indicator?

Answer: Employee turnover rate

Employee turnover rate is a non-financial HR metric. Gross profit margin, ROCE and EPS are all financial measures derived from accounting data.

Throughput accounting ratio (TAR) is calculated as:

Answer: Throughput per bottleneck hour ÷ Cost per factory hour

TAR = (Throughput per unit of bottleneck resource) ÷ (Total factory cost per unit of bottleneck resource). A TAR > 1 indicates the product is worth producing.

In a divisional structure, 'goal congruence' means:

Answer: Divisional managers' decisions are aligned with the overall goals of the organisation

Goal congruence exists when divisional managers, acting in their own interests, also act in the best interest of the organisation as a whole.

Which of the following best describes 'benchmarking' in performance management?

Answer: Comparing performance against best-in-class standards to identify improvement opportunities

Benchmarking compares an organisation's processes, products and performance against best-practice peers to identify gaps and drive improvement.