Deck 2: Profitability: Business Success From Operations Success

Question 1

An estimation of the customer's perception of value must recognize that customers make comparative judgments.

Answer 1

True

Question 2

Profit margin = Net income/sales

Answer 2

True

Question 3

Return on Assets (ROA) is a narrow measure of asset productivity.

Answer 3

False

Question 4

Not-for-profit organizations do not need to be concerned with financial performance.

Question 5

Economic value added (EVA), like more traditional productivity measures, is a ratio.

Question 6

One important role of managers is to ensure that the value created by processes is greater than its cost.

Question 7

To be useful, any measure of investment success must measure the productivity of the resource involved.

Question 8

Net income is a measure of the productivity of money.

Question 9

Net income is often expressed on a per-share basis for shares outstanding to provide a measure of earnings per share.

Question 10

One of the difficulties sometimes associated with using EVA is that the average cost of capital is a weighted average.

Question 11

Unlike efficiency, utilization can be actually greater than 100 percent in cases where a resource is performing better than the standard.

Question 12

Which of the following statements is not true about profitability?

A) It is difficult to predict the impact daily operations have on profit
B) Profit is the only measure of investment success
C) Financial productivity is often referred to in terms of profitability
D) Profit margin is the ratio of income to sales

Question 13

The profitability measure that DOES NOT compare income to a particular input is:

A) Profit margin
B) Return on assets
C) Return on equity
D) Economic Value Added

Question 14

For operations, the most relevant global profitability measures are:

A) Profit margin and return on assets
B) Inventory turns and utilization
C) Utilization and efficiency
D) Return on equity and economic value added

Question 15

Which of the following statements is not true about EVA?

A) EVA is the after-tax operating profit minus the annual cost of capital
B) A positive EVA means the company is creating wealth from its capital
C) Employees can improve EVA directly in three different ways
D) Companies find it easy to use EVA because the average cost of capital is a weighted average

Question 16

Which of the following would NOT be a way an employee could directly improve EVA?

A) Improve profitability without increasing the investment required
B) Invest in certain technologies and recommend that investments grow the business
C) Increase the amount of investments that don't affect earnings
D) None of the above.

Question 17

Which of the following statements is true about capacity?

A) Capacity is the capability of workers, machines, or organizations to produce output in a specific period of time.
B) Utilization is the best measure of capacity performance
C) Utilization can be greater than 100 percent.
D) Capacity of services can be stored for later use in the form of inventory.

Question 18

The most direct approach to increase net income is to:

A) Reduce the cost of goods sold
B) Increase net sales
C) Reduce interest paid
D) Reduce taxes
E) None of the above

Question 19

Which of the following IS NOT one of the four perspectives on which the balance-scorecard is based?

A) Financial objectives
B) Customer outcomes
C) Information flow
D) Internal business processes
E) Learning and growth

Question 20

Which of the following is not true of balanced scorecard?

A) It emphasizes financial as well as nonfinancial measures
B) It addresses only qualitative measures of performance
C) It is based on four perspectives
D) In looks at past performance as well as future plans

Question 21

Decision tree analysis is used

A) To organize decisions that involve alternatives with differing expected revenues and differing levels of certainty.
B) To organize decisions when alternatives have different fixed and variable costs.
C) When there is no uncertainty associated with the alternatives.
D) To chose among alternatives using qualitative criteria.

Question 22

In the customer outcomes portion of the balanced scorecard:

A) The emphasis is on processes that don't add value.
B) The emphasis is on resources the customer uses.
C) The emphasis is on product quality.
D) The emphasis is on processes the customer interacts with.

Question 23

In decision tree analysis, expected benefit is computed by:

A) Multiplying expected outcomes by the financial amount appropriate.
B) Multiplying expected outcomes by its associated probability.
C) Adding expected outcomes together.
D) Subtracting expected costs from expected outcomes

Question 24

A danger associated with focusing all productivity improvement efforts on cost reduction is that

A) The wrong cost will be chosen.
B) Reducing costs doesn't help productivity measures because costs are in the denominator.
C) Results may be short term.
D) Productivity measures are not related to costs

Question 25

One of the most difficult things for a business to predict is:

A) The costs for inputs.
B) The customers' perceptions of the value of products or services.
C) The cost of product or service design changes.
D) None of the above is difficult to predict.

Question 26

Assuming no change in demand, as the quantity of inventory delivered in each shipment is reduced and the frequency of delivery is increased:

A) The average level of inventory increases.
B) The cost of ordering inventory is decreased.
C) The productivity of the inventory drops.
D) The financial return for the inventory investment increases.

Question 27

Utilization is calculated as

A) Actual resource running time divided by time available
B) Time available divided by actual running time
C) Actual output divided by standard output
D) Standard output divided by actual output

Question 28

Efficiency is calculated as

A) Actual running time divided by time available
B) Time available divided by actual running time
C) Actual output divided by standard output
D) Standard output divided by actual output

Question 29

A commonly used measure of facility productivity used by retailers is

A) Annual lease cost divided by gross sales revenues
B) Daily customer number count divided by daily facility cost
C) Daily sales divided by daily customer count
D) Sales per square foot

Question 30

Which of the following is probably not a way employees contribute to net income

A) A customer's experience with employees can determine their likelihood of returning
B) Employees buy the assets that form the denominator in the ROA calculation
C) Employees can solve problems and that can result in cost reduction
D) Employees make frequent decisions that affect costs and value
A retailer of electronic products has asked a particular manufacturer to begin daily deliveries rather than on a weekly basis. Currently the manufacturer delivers 1000 cases each Monday. The cost of each case is valued at $300. Assume 5 days per week and 20 days per month.

Question 31

The average inventory (in units) with weekly shipments of 1000 cases is:

A) 1000
B) 1000/7
C) 1000/5
D) 500
E) None of the above.

Question 32

The average inventory (in dollars) with weekly shipments of 1000 cases is:

A) $300,000
B) $100,000
C) $60,000
D) $150,000
E) None of the above.

Question 33

The average inventory (in dollars) for the daily delivery pattern, assuming 20 days/month, is:

A) $30,000
B) $300,000
C) $60,000
D) $90,000
E) None of the above.

Question 34

A small workstation in a factory is available 2400 minutes per week. Currently, 120 minutes are used for preventive maintenance and 240 minutes are consumed adjusting the equipment. What is its utilization?

A) 15%
B) 90%
C) 66.7%
D) 85%
E) None of the above.

Question 35

Pizza-Pronto is concerned about the utilization of its new high-capacity conveyor belt oven. It is currently turned on for 6 hours per night. On a recent night, it was cycled 44 times. Each cycle takes 6 minutes. What was the oven's utilization?

A) 73.33%
B) 1.36%
C) 13.64%
D) 44%

Question 36

In his part-time job, Rob is required to make 12 marketing calls per hour. Last night he averaged 10.6 calls per hour. What was Rob's efficiency?

A) 113.2%
B) 88.33%
C) 83.33%
D) 100%

Question 37

The food service dish washers are expected to scrub 20 pots per hour. In Julie's first shift as a pot scrubber, she was able to scrub 24 pots per hour. What was Julie's efficiency?

A) 83.33%
B) 24%
C) 120%
D) 68%

Question 38

Rick, Sandi, Jim, and Audry are painters for a college student painting company. Each works hours that fit their class schedules. Last week they were preparing windows for painting. Rick was able to prepare 12 windows in 7 hours. Sandi was able to prepare 14 windows in 11 hours. Jim prepared 16 windows in 12 hours. Audrey prepared 6 windows in 5 hours. Who was most productive?

A) Rick
B) Sandi
C) Jim
D) Audrey

Question 39

Angie is considering 3 alternatives for employment. Each is a sales position with a starting salary of $32,000. The bonus plans for each, and Angie's estimation for the probabilities of meeting the bonus criteria are below. Assuming everything else is equal, which job should Angie accept?
Alternative A
Sales: $200K Bonus: $3000 Probability: .6
Sales: $400K Bonus: $5000 Probability: .4
Alternative B
Sales: $300K Bonus: $2000 Probability: .4
Sales: $500K Bonus: $3500 Probability: .4
Sales: $700K Bonus: $6000 Probability: .2
Alternative C
Sales: $200K Bonus: $2500 Probability: .4
Sales: $450K Bonus: $4000 Probability: .3
Sales: $600K Bonus: $5000 Probability: .2
Sales: $750K Bonus: $6000 Probability: .1

A) Alternative A
B) Alternative B
C) Alternative C
D) Alternative A and C are equal

Question 40

Net income provides a(n) _________ measure, but lacks the input comparison necessary for a measure of __________.

Question 41

The three most common measures of profitability are __________, ________, and __________.

Question 42

_________ _________ tells us how much profit is generated per dollar of sales.

Question 43

EVA differs from the three traditional profitability measures in that it is a(n) ________ measure of dollars.

Question 44

The most common measure of inventory productivity is _______ ________.

Question 45

The ______ _______ of a particular inventory is the number of orders satisfied from the inventory divided by the total number of orders.

Question 46

Most productivity measures used by managers to make day-to-day decisions can be thought of as ______ productivity measures.

Question 47

The balanced scorecard is based on ______ perspectives.

Question 48

The balanced scorecard addresses ________ and _______ measures of performance.

Question 49

Match these items:

-Service level

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 50

Match these items:

-Productivity Measure

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 51

Match these items:

-Return on assets

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 52

Match these items:

-Profit margin

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 53

Match these items:

-Net present value

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 54

Match these items:

-Balanced scorecard

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 55

Match these items:

-Economic value added

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 56

Match these items:

-Machine utilization

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 57

Match these items:

-Profitability measure

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 58

Match these items:

-Return on equity

A) Sum of discounted cash flows
B) Absolute measure of value wealth created by capital
C) Measure the productivity of money as a ratio
D) Actual running time divided by time available
E) Effectiveness of stockholders investment
F) Profit per dollar of assets
G) Global performance measurement system based on four perspectives
H) The percentage of demand satisfied from on hand inventory
I) A ratio of outputs over inputs
J) Profit per dollar of sales

Question 59

Below mentioned are productivity measures for three-person sales force in your organization.
$\begin{array}{lrrr} &\text { Adam }& \text {Bob } &\text {Cindy } \\\text {Sales dollars} & 35,000 & 28,000 & 42,000 \\\text {Clients visited }& 102 & 95 & 90 \\\text {Clients in region }& 150 & 125 & 150 \\\text {Miles traveled} & 5,000 & 4,000 & 4,500 \\\text {Salary monthly} & 6,000 & 7,000 & 6,500\end{array}$

Based on the above data, compute the following productivity measures: sales dollars per mile, sales dollars per visit, sales dollars per client, percent of clients visited, and sales dollar generated per dollar of salary.

Question 60

A newly purchased machine has been monitored for the past week to provide information to be used for scheduling. The observations are noted below. Based on the information given below, compute the utilization impact each category of downtime had.
$\begin{array}{lr}\quad\text { Reason for Downtime} & \text {Minutes} \\\text {Operator not present }& 120 \\\text {Preventive maintenance }& 125 \\\text {Breakdown }& 50 \\\text {Adjustment/programming} & 100 \\\text {Material quality problem} & 45 \\& \\\text {Total time available} & 2400\end{array}$

Question 61

Describe the advantages of using the balanced scorecard approach to performance measurement.

Question 62

Many faculty have criticized the use of student evaluations as the sole criteria for evaluating a faculty member's teaching effectiveness in the classroom. Design a balanced scorecard approach for evaluating faculty teaching effectiveness. How would you sell this approach to administrators?