PERFORMANCE MEASUREMENT

Which of the following are elements of a mission statement?

(i) Purpose

(ii) Strategy

(iii) Values

(iv) Culture

• All of them

• (i) and (iii) only

• (iii) only

• (ii) and (iv) only

An organisation is divided into a number of divisions, each of which operates as a profit centre.  

Which TWO of the following would be useful measuresto monitor divisional performance?

• Contribution

• Controllable profit

• Return on investment

• Residual income

Answer explanation

The manager of a profit centre can exercise control over revenues and controllable costs, but has no influence concerning the capital invested in the centre. Contribution (A) would be a useful performance measure because a profit centre manager can exercise control over sales revenue and variable costs. Controllable profit (B) would also be useful as long as any overhead costs charged in deriving the profit figure are controllable by the profit centre manager. Apportioned central costs would not be deducted when calculating controllable profit. Return on investment (C), and residual income (D) would not be useful because they require a measure of the capital invested in the division. 

When measuring performance which of the following could impact the overall results for the business? (i) A new competitor

(ii) A change in local government

(iii) An increase in interest rates

(iv) A change in national government

• (i) and (iv) only

• None of the above

• (ii) and (iv) only

• All of the above

Which of the following performance measurements could be a result of government legislation?

• Carbon footprint

• Retention of customers

• Return on capital employed

• Capacity ratio

Which of the following statements relating to sustainability is true?

(i)   Sustainability involves taking a long‐term view and allowing the needs of present generations to be met without compromising the ability of future generations to meet their own needs.

(ii)   Sustainability involves considering the needs of the organisation’s shareholders only.

(iii)   Accountants have a public interest duty to protect society as a whole and the organisation’s sustainability

• (i) only

• (ii) only

• (ii) and (iii) only

• (i) and (iii) only

Which aspect of an organisation’s performance with respect to sustainability are measured using ‘triple bottom line’ measures?

• Economy, effectiveness, efficiency

• Economic, social, environmental

• Profitability, liquidity, investment

• Productivity, activity, profitability  

In the last year a division’s controllable return on investment was 25% and its controllable profit was $80,000.

The cost of finance appropriate to the division was 18% per annum. What was the division’s controllable residual income in the last year?

• $5,600 

• $22,400

• $74,400  

• $76,400  

Answer explanation

Controllable assets = 80,000 ÷ 0.25 = $320,000 RI = $80,000 – ($320,000 × 0.18) = $80,000 – $57,600 = $22,400

A government body uses measures based upon the ‘three Es’ to the measure value for money generated by a publicly funded hospital. It considers the most important performance measure to be ‘cost per successfully treated patient’.

Which of the three E’s best describes the above measure?

• Economy  

• Effectiveness

• Efficiency 

• Externality 

Answer explanation

Cost per patient is a measure of output related to input

A government is looking at assessing hospitals by reference to a range of both financial and non‐financial factors, one of which is survival rates for heart by‐pass operation.  

Which of the three E’s best describes the above measure?

• Economy  

• Effectiveness

• Efficiency

• Externality

Answer explanation

Reducing mortality rates is likely to be a stated objective of the hospital and as such is a measure of output, or effectiveness

Which of the following measures would not be appropriate for a cost centre?

• Cost per unit

• Contribution per unit

• Comparison of actual labour cost to budget labour cost

• Under or over absorption of overheads

Answer explanation

Contribution is calculated as sales revenue less variable costs.  The manager of a cost centre will not be responsible for the revenue therefore this is not an appropriate measure.