Chapter 11: Performance measurement in decentralized organizations.

Exercise 1 (7 pts): Cost-Volume-Profit Analysis and Return on Investment (ROI)

Posters.com is a small Internet retailer of high-quality posters. The company has $1,000,000 in operating assets and fixed expenses of $150,000 per year. With this level of operating assets and fixed expenses, the company can support sales of $3,000,000 per year. The companys contribution margin ratio is 25%, which means that an additional dollar of sales results in an additional contribution margin, and net operating income, of 25 cents.

Required

Complete the following table showing the relation between sales and return on investment (ROI). [6 pts]

(Please, show your work in the space below the table.)

Sales	Net Op. Income	Average Operating Assets	ROI
$2,500,000		$1,000,000
$2,600,000		$1,000,000
$2,700,000		$1,000,000
$2,800,000		$1,000,000
$2,900,000		$1,000,000
$3,000,000		$1,000,000

What happens to the companys return on investment as sales increase? Explain. [1 pts]

Exercise 2 (14 pts): Measures of Internal Business Process Performance.

DataSpan, Inc. automated its plant at the start of the current year and installed a flexible manufacturing system. The company is also evaluating its suppliers and moving towards Lean Production. Many adjustment problems have been encountered, including problems relating to performance measurement. After much study, the company has decided to use the performance measures below, and it has gathered data relating to these measures for the first four months of operations.

	4-Month Period
	Month 1	Month 2	Month 3	Month 4
Throughput time (days)
Delivery cycle time (days)
Manufacturing cycle efficiency (MCE)
Percentage of on-time deliveries	91%	86%	83%	79%
Total sales (units)	3,210	3,072	2,915	2,806

Management has asked for your help in computing throughput time, delivery cycle time, and MCE. The following average times have been logged over the last four months:

	Average per Month (in days)
	Month 1	Month 2	Month 3	Month 4
Move time per unit	0.4	0.3	0.4	0.4
Process time per unit	2.1	2.0	1.9	1.8
Wait time per order before start of production	16.0	17.5	19.0	20.5
Queue time per unit	4.3	5.0	5.8	6.7
Inspection time per unit	0.6	0.7	0.7	0.6

Required:

For each month, compute the following:

The throughput time (4 pts)

The MCE (4 pts)

The delivery cycle time (4 pts)