What are the four perspectives of the balanced scorecard? Briefly describe each.

Short Answer

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  • How are we seen by our shareholders?
  • What do consumers think about us?
  • Which business process must we excel at in order to meet our customers' and financial goals?
  • How can we maintain our progress and add value?

Step by step solution

01

Meaning Balanced Scorecard

Companies use a balanced scorecard as a vital arranging system to arrange their activities, merchandise, and administrations, communicate around their destinations, and plan their ordinary operations.

02

Four perspectives of the balanced scorecard

There are four approaches to the Balancing Scorecard: commerce, financial, customer, and internal learning and development.

  1. The financial perspective helps managers decide how they appear to their shareholders.
  2. Managers can evaluate how customers view us using the customer's perspective.
  3. The theme of "Which commerce process must exceed expectations to achieve customer and financial goals" is from an inside company perspective.
  4. "How can we move forward to create and strive for value?" The issue of assessment is designed from the point of view of learning and development.

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Most popular questions from this chapter

What are some limitations of financial performance measures?

Consider the following key performance indicators, and classify each indicator according to the balanced scorecard perspective it addresses. Choose from the financial perspective, customer perspective, internal business perspective, and the learning and growth perspective.

a. Number of customer complaints

b. Number of information system upgrades completed

c. Residual income

d. New product development time

e. Employee turnover rate

f. Percentage of products with online help manuals

g. Customer retention

h. Percentage of compensation based on performance

i. Percentage of orders filled each week

j. Gross margin growth

k. Number of new patents

l. Employee satisfaction ratings

m. Manufacturing cycle time (average length of production process)

n. Earnings growth

o. Average machine setup time

p. Number of new customers

q. Employee promotion rate

r. Cash flow from operations

s. Customer satisfaction ratings

t. Machine downtime u. Finished products per day per employee

v. Percentage of employees with access to upgraded system

w. Wait time per order prior to start of production

Question: Determining transfer pricing

The Hernandez Company is decentralized, and divisions are considered investment centers. Hernandez has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. The Chair Division currently purchases the cushions for \(32 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 1,800 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,800 cushions per quarter. The two divisions report the following information:

Chair Division Cushion Division

Sales Price per Chair \) 95 Sales Price per Cushion \( 34

Variable Cost (other than cushion) 56 Variable Cost per Cushion 12

Variable Cost (cushion) 32

Contribution Margin per Chair \) 7 Contribution Margin per Cushion $ 22

Requirements

1. Determine the total contribution margin for Hernandez Company for the quarter.

2. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company?

3. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company?

4. Review your answers for Requirements 1, 2, and 3. What is the best option for Hernandez Company?

5. Assume the Cushion Division has capacity of 1,800 cushions per quarter and can continue to supply its outside customers with 1,800 cushions per quarter and also supply the Chair Division with 1,800 cushions per quarter. What transfer price should Hernandez Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter.

What is the biggest disadvantage of using ROI to evaluate investment centers?

How does capacity affect transfer pricing decisions?

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