Professional Documents
Culture Documents
Lass Class
Factors affecting pricing decision
Customers, competitors, and costs
Perfectly competitive, less competitive, and not
competitive markets
Market-based and cost-plus pricing
Competition
Target pricing and costing (market-based)
Markup percentage (cost-plus)
What is a balanced
scorecard?
Learning Objectives
Recognize which of two generic strategies a
company is using
Understand the four perspectives of the balances
scorecard
Analyze changes in operating income to evaluate
strategy
Strategy
Strategy specifies how an organization matches
Implementation of Strategy
Many companies have introduced a
Dow Chemical
Balanced Scorecard
Perspectives
Financial
profits and value created for shareholders
Customer
success of the company in its target market
customers
Learning and Growth
people and system capabilities that support
operations
2009 Pearson Prentice Hall. All rights reserved.
Operations
Post-sales service
Infosys Technologies
Infosys: an Indianmultinational corporation
providesbusiness consulting
information technology
software engineering
outsourcingservices
In 2000s, Infosys turned to the balanced scorecard to
Balanced Scorecard
Illustration
PPT Slides
Strategy
and the
Balance
d
Scorecar
d,
Illustrate
d
2009 Pearson Prentice Hall. All rights reserved.
Balanced Scorecard
Implementation
Must have commitment and leadership from
top management
Must be communicated to all employees
Surveys indicate that companies assign 55% weight to
strategy implementation
Cutting R&D
PfizerInc. is feeling continued sales pressure from
Balanced Scorecard
Implementation
Managers should not Pitfalls
assume the cause-andeffect linkages are precise
They are merely hypotheses
Scorecard evolves over time
measures
Balanced Scorecard
Implementation Pitfalls
Managers should not ignore nonfinancial
Analyze changes in
operating income to
evaluate strategy
Conversioncosts(laborandoverheadcosts)foreachyeardependon
productionprocessingcapacitydefinedintermsofthequantityofsquare
centimetersofsiliconwafersthatChipsetcanprocess
ChipsetincursnoR&Dcosts
Chipsetsassetstructureisverysimilarin2010and2011
Chipsetsdatafor2010and2011follow:
1.UnitsofCX1producedandsold
2.Sellingprice
3.Directmaterials(squarecentimetersofsiliconwafers)
4.Directmaterialcostpersquarecentimeter
5.Manufacturingprocessingcapacity(insquarecentimetersofsiliconwafer)
6.Conversioncosts(allmanufacturingcostsotherthandirectmaterialcosts)
7.Conversioncostperunitofcapacity(row6row5)
2010
1,000,000
2011
1,150,000
$23
$22
3,000,000
2,900,000
$1.40
$1.50
3,750,000
$16,050,000
$4.28
3,500,000
$15,225,000
$4.35
2010
2011
Revenues
($23perunit1,000,000units;$22perunit1,150,000units)
Costs
Directmaterialcosts
($1.40/sq.cm.3,000,000sq.cm.;$1.50/sq.cm.2,900,000sqcm)
Conversioncosts
($4.28/sq.cm.3,750,000sq.cm.;$4.35/sq.cm.3,500,000sq.cm.)
23,000,000
25,300,000
4,200,00
4,350,000
16,050,000
15,225,000
Totalcosts
20,250,000
19,575,000
Operatingincome
2,750,000
5,725,000
Changeinoperatingincome
2,975,000F
Evaluating Strategy
Strategic Analysis of Operating Income three
parts:
Evaluating Strategy
Strategic Analysis of Operating Income
Growth Component
Revenue effect of growth
(actual units of output sold in 2011- actual units of output sold in
630,000 U
0
$3,450,000
F
630,000 U
$2,820,000
F
Operating Income
$ 1,087, 500 F
Strategic Analysis of
Profitability Illustrated
Income
statement
Amounts in
2010
Revenue
and Cost
Effects of
Growth
Component
in 2011
Revenues
(1)
$23,000,00
0
(2)
$3,450,000
F
630,000
U
$
2,820,000
F
Costs
Operating
income
20,250,000
$
2,750,000
Revenue
and Cost
Effects of
PriceRecovery
Component
in 2011
(3)
$1,150,00
0U
607,500
U
$ 1,757,500
U
Cost Effect
of
Productivity
Component
in 2011
Income
Statement
Amounts in 2011
(4)
---
(1)+(2)+(3)+(4)
$25,300,000
$1,912,000
F
$1,912,50
0F
$ 2,975,000 F
19,575,000
$ 5,725,000
In class-exercise: product
differentiation
2012
40,000
$100
120,000
$10
50,000
units
$1,000,00
0
$20
30
customer
s
$720,000
$24,000
2013
42,000
$110
123,000
$11
50,000
units
$1,100,00
0
$22
29
customer
s
$725,000
$25,000
In class-exercise
In 2011, Westwood produced no defective units
Calculatethegrowth,price-recovery,andproductivitycomponents
thatexplainthechangeinoperatingincomefrom2010to2011.
Revenues
($100 per unit *40,000 units; $110 per unit * 42,000
units)
Costs
Direct material costs
($10 per sq. ft. *120,000 sq. ft; $ 11 per sq. ft. *
123,000 sq. ft.)
Conversion costs
($20 per unit * 50,000 units; $22 per unit * 50,000
units)
Selling and customer-service cost
($24,000 per customer * 30 customers;
$25,000 per customer * 29 customers )
Total costs
Operating income
Change in operating income
2012
$4,000,00
0
1,200,000
2013
$4,620,0
00
1,353,00
0
1,000,000 1,100,00
0
720,000
725,000
2,920,000 3,178,00
0
$1,080,00 $1,442,0
0
00
$362,000 F
Price-Recovery Component of
Operating-Income Change
Revenue effect of price recovery = (selling price in 2013 Selling price
in 2012) Actual units of output sold in 2013 = ($ 110 per unit - $ 100
per unit) 42,000 units= $420.000 F
Cost effect of price recovery for variable costs= (Input price in 2013
$25,000/customer = $25,000 F