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Chapter 24: Q24-11RQ (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

Well-designed performance evaluation systems accomplish many goals. Consider the following actions, and state which goal is being achieved by the action:

a. Comparing targets to actual results

b. Providing subunit managers with performance targets

c. Comparing actual results with industry standards

d. Providing bonuses to subunit managers who achieve performance targets

e. Aligning subunit performance targets with company strategy

f. Comparing actual results of competitors

g. Taking corrective actions

h. Using the adage “you get what you measure” when designing the performance evaluation system

What is a performance evaluation system?

Question:The accountant for a subunit of Speed Sports Company went on vacation before completing the subunit’s monthly responsibility report. This is as far as she got:

Speed—Subunit X Revenue by Product Actual Results Flexible Budget Variance Flexible Budget Sales Volume Variance Static Budget

Downhill-RI \( 321,000 (a) (b) \) 17,000 F \( 295,000

Downhill-RII 151,000 (c) \) 161,000 (d) 145,000

Cross-EXI 285,000 \( 3,000 U 288,000 (e) 303,000

Cross-EXII 259,000 (f) 255,000 16,500 U 271,500

Snow-LXI 425,000 2,000 F (g) (h) 404,000

Total \) 1,441,000 (i) (j) (k) \( 1,418,500

Requirements

1. Complete the responsibility report for this subunit.

2. Based on the data presented, what type of responsibility center is this subunit?

3. Which items should be investigated if part of management’s decision criteria is to investigate all variances exceeding \)12,000?

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

What does RI measure?
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