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Chapter 24: Q11RQ (page 1355)

Explain the difference between a lag indicator and a lead indicator.

Short Answer

Expert verified

Answer

A lag indicator measures past performance while a lead indicator forecasts future performance.

Step by step solution

01

Meaning of Lag indicator

For instance, the frequency of accidents on a construction site is a lagging safety indicator. Lagging indicators are output measurements in this case.

02

Difference between a lag indicator and a lead indicator

The distinction between the two is that a leading indicator may affect change, but a trailing indicator can only reflect what has already occurred.

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Most popular questions from this chapter

Zims, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year:

Net Sales Revenue Operating Income Average Total Assets

Residential \( 550,000 \) 65,280 $ 192,000

Professional 1,090,000 164,820 402,000

Management has a 26% target rate of return for each division.

Requirements

1. Calculate each division’s ROI. Round all of your answers to four decimal places.

2. Calculate each division’s profit margin ratio. Interpret your results.

3. Calculate each division’s asset turnover ratio. Interpret your results.

4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude?

How does capacity affect transfer pricing decisions?

What does RI measure?

What is the typical focus of responsibility reports for cost centers, revenue centers, and profit centres?

Sheffield Company manufactures power tools. The Electric Drill Division (an investment center) can purchase the motors for the drills from the Motor Division (another investment center) or from an outside vendor. The cost to purchase from the outside vendor is \(20. The Motor Division also sells to outside customers. The motor needed by the Electric Drill Division sells for \)25 to outside customers and has a variable cost of $15. The Motor Division has excess capacity.

21. If Sheffield Company allows division managers to negotiate transfer prices, what is the minimum amount the manager of the Motor Division should consider?

22. What is the maximum transfer price the manager of the Electric Drill Division should consider?
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