Performance Evaluation (Pengukuran Kinerja)

Performance Evaluation
(Pengukuran Kinerja)
Chapter 23
2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster
23 - 1
Tujuan Pembelajaran 1
Mengukur kinerja
dari perspektif keuangan dan
non finansial
23 - 2
Pengukuran Kinerja
Keuangan dan non Keuangan
Perusahaan menggunakan pengukuran keuangan
Internal yang didasarkan pada:
Informasi keuangan eksternal
Informasi non keuangan internal
Informasi non keuangan eksternal
23 - 3
Pengukuran Kinerja
Beberapa organisasi menyajikan pengukuran
kinerja keuangan dan non keuangan untuk sub
unitnya dalam sebuah laporan tunggal yakni:
balanced scorecard.
Kebanyakan Scorecard meliputi:

pengukuran profitabilitas
pengukuran kepuasan pelanggan
23 - 4
Pengukuran Kinerja
Pengukuran internal dari efisiensi, kualitas, dan waktu
innovation measures
Some performance measures have
a long-run time horizon.
Other measures have a short-run time horizon.
23 - 5
Learning Objective 2
Design an accounting-based
performance measure.
23 - 6
Accounting-Based
Performance Measure
Step 1:
Choose performance measures that align
with top managements financial goal(s).
Step 2:
Choose the time horizon of each
performance measure in Step 1.
Step 3:
Choose a definition for each.
23 - 7
Accounting-Based
Performance Measure
Step 4:
Choose a measurement alternative for
each performance measure in Step 1.
Step 5:
Choose a target level of performance.
Step 6:
Choose the timing of feedback.
23 - 8
Accounting-Based Performance
Measure Example
Relax Inns owns three small hotels
one each in Boston, Denver, and Miami.
At the present, Relax Inns does not
allocate the total long-term debt of
the company to the three separate hotels.
23 - 9
Measure Example
Boston Hotel
Current assets
$350,000
Long-term assets 550,000
Total assets
$900,000
Current liabilities $ 50,000
Revenues
$1,100,000
Variable costs
297,000
Fixed costs
637,000
Operating income $ 166,000
23 - 10
Measure Example
Denver Hotel
Current assets
$ 400,000 Revenues
$1,200,000
Long-term assets
600,000 Variable costs
310,000
Total assets
$1,000,000 Fixed costs
650,000
Current liabilities $ 150,000 Operating income $ 240,000
23 - 11
Measure Example
Miami Hotel
Current assets
$ 600,000
Long-term assets 5,000,000
Total assets
$5,600,000
Current liabilities $ 300,000
Revenues
$3,200,000
Variable costs
882,000
Fixed costs
1,166,000
Operating income $1,152,000
23 - 12
Measure Example
Total current assets
Total long-term assets
Total assets
Total current liabilities
Long-term debt
Stockholders equity
Total liabilities and equity
$1,350,000
6,150,000
$7,500,000
$ 500,000
4,800,000
2,200,000
$7,500,000
23 - 13
Approaches to
Measuring Performance
Three approaches include a measure of investment:
Return on investment (ROI)
Residual income (RI)
Economic value added (EVA)
A fourth approach, return on sales (ROS),
does not measure investment.
23 - 14
Analyze return on investment
(ROI) using the DuPont method.
23 - 15
Return on Investment
Return on investment (ROI) is an
accounting measure of income
divided by an accounting
measure of investment.
Return on investment (ROI)
= Income Investment
23 - 16
Return on Investment
What is the return on investment for each hotel?
Boston Hotel:
$166,000 Operating income

$900,000 Total assets = 18%
Denver Hotel: $240,000 Operating income
$1,000,000 Total assets = 24%
Miami Hotel: $1,152,000 Operating income
$5,600,000 Total assets = 21%
23 - 17
DuPont Method
The DuPont method of profitability analysis
recognizes that there are two basic
ingredients in profit making:
1. Using assets to generate more revenues
2. Increasing income per dollar of revenues
23 - 18
DuPont Method
Return on sales = Income Revenues
Investment turnover = Revenues Investment
ROI = Return on sales Investment turnover
23 - 19
DuPont Method
How can Relax Inns attain a 30% target
ROI for the Denver hotel?
Present situation: Revenues Total assets
= $1,200,000 $1,000,000 = 1.20
Operating income Revenues
= $240,000 $1,200,000 = 0.20
1.20 0.20 = 24%
23 - 20
DuPont Method
Alternative A: Decrease assets, keeping
revenues and operating income per
dollar of revenue constant.
Revenues Total assets
= $1,200,000 $800,000 = 1.50
1.50 0.20 = 30%
23 - 21
DuPont Method
Alternative B: Increase revenues, keeping
assets and operating income per dollar
of revenues constant.
= $1,500,000 $1,000,000 = 1.50
= $300,000 $1,500,000 = 0.20
1.50 0.20 = 30%
23 - 22
DuPont Method
Alternative C: Decrease costs to increase
operating income per dollar of revenues,
keeping revenues and assets constant.
= $1,200,000 $1,000,000 = 1.20
= $300,000 $1,200,000 = 0.25
1.20 0.25 = 30%
23 - 23
Use the residual-income (RI)
measure and recognize
its advantages.
23 - 24
Residual Income
Residual income (RI)
= Income
(Required rate of return Investment)
Assume that Relax Inns required
rate of return is 12%.
What is the residual income from each hotel?
23 - 25
Residual Income
Boston Hotel:
Total assets $900,000 12% = $108,000
Operating income $166,000 $108,000
= Residual income $58,000
Denver Hotel = $120,000
Miami Hotel = $480,000
23 - 26
Describe the economic value
added (EVA) method.
23 - 27
Economic Value Added

Economic value added (EVA)
= After-tax operating income
[Weighted-average cost of capital
(Total assets current liabilities)]
23 - 28

Total assets minus current liabilities
can also be computed as:
Long-term assets + Current assets
Current liabilities, or
Long-term assets + Working capital
23 - 29

Economic value added (EVA) substitutes the
following specific numbers in the RI calculations:
1. Income equal to after-tax operating income
2. A required rate of return equal to the
weighted-average cost of capital
3. Investment equal to total assets minus
current liabilities
23 - 30
Economic Value Added Example

Assume that Relax Inns has two sources of
long-term funds:
1. Long-term debt with a market value and
book value of $4,800,000 issued at an
interest rate of 10%
2. Equity capital that also has a market value of
$4,800,000 and a book value of $2,200,000
Tax rate is 30%.
23 - 31

What is the after-tax cost of capital?
0.10 (1 Tax rate) = 0.07, or 7%
Assume that Relax Inns cost of
equity capital is 14%.
What is the weighted-average cost of capital?
23 - 32

WACC = [(7% Market value of debt)
+ (14% Market value of equity)]
(Market value of debt + Market value of equity)
WACC = [(0.07 4,800,000)
+ (0.14 4,800,000)] $9,600,000
WACC = $336,000 + $672,000 $9,600,000
WACC = 0.105, or 10.5%
23 - 33

What is the after-tax operating income for each hotel?
Boston Hotel:
Operating income $166,000 0.7 = $116,200
Denver Hotel:
Operating income $240,000 0.7 = $168,000
Miami Hotel:
Operating income $1,152,000 0.7 = $806,400
23 - 34

What is the investment?
Boston Hotel: Total assets $900,000
Current liabilities $50,000 = $850,000
Denver Hotel: Total assets $1,000,000
Current liabilities $150,000 = $850,000
Miami Hotel: Total assets $5,600,000
Current liabilities $300,000 = $5,300,000
23 - 35

What is the weighted-average cost of capital
times the investment for each hotel?
Boston Hotel: $850,000 10.5% = $89,250
Denver Hotel: $850,000 10.5% = $89,250
Miami Hotel: $5,300,000 10.5% = $556,50
23 - 36

What is the economic value added?
Boston Hotel: $116,200 $89,250 = $26,950
Denver Hotel: $168,000 $89,250 = $78,750
Miami Hotel: $806,400 $556,500 = $249,900
The EVA charges managers for the cost
of their investments in long-term assets
and working capital.
23 - 37
Return on Sales
The income-to-revenues (sales) ratio, or return
on sales (ROS) ratio, is a frequently used
financial performance measure.
What is the ROS for each hotel?
Boston Hotel: $166,000 $1,100,000 = 15%
Denver Hotel: $240,000 $1,200,000 = 20%
Miami Hotel: $1,152,000 $3,200,000 = 36%
23 - 38
Comparing Performance
Hotel
Boston
Denver
Miami
ROI
18%
24%
21%
RI
$ 58,000
$120,000
$480,000
EVA
$ 26,950
$ 78,750
$249,900
ROS
15%
20%
36%
23 - 39
Comparing Performance
Methods Ranking
Hotel
Boston
Denver
Miami
ROI
3
1
2
RI
3
2
1
EVA ROS
3
3
2
2
1
1
23 - 40
Contrast current-cost and
historical-cost asset
measurement methods.
23 - 41
Choosing the Time Horizon

The second step of designing accounting-based
performance measures is choosing the time
horizon of each performance measure.
Many companies evaluate subunits on the basis
of ROI, RI, EVA, and ROS over multiple years.
23 - 42
Choosing Alternative Definitions

The third step of designing accounting-based
performance measures is choosing a definition
for each performance measure.
Definitions include the following:
1. Total assets available includes all assets,
regardless of their particular purpose.
23 - 43

2. Total assets employed includes total assets
available minus the sum of idle assets and
assets purchased for future expansion.
3. Total assets employed minus current liabilities
excludes that portion of total assets employed
that are financed by short-term creditors.
23 - 44

4. Stockholders equity using in the Resorts Inns
example requires allocation of the long-term
liabilities to the three hotels, which would then
be deducted from the total assets of each hotel.
23 - 45
Choosing Measurement
Alternatives
The fourth step of designing accounting-based
performance measures is choosing a measurement
alternative for each performance measure.
The current cost of an asset is the cost now of
purchasing an identical asset to the one
currently held.
Historical-cost asset measurement methods
generally consider the net book value of the asset.
23 - 46
Alternatives
The fifth step of designing accounting-based
performance measures is choosing a target
level of performance.
Historical cost measures are often inadequate for
measuring economic returns on new investments
and sometimes create disincentives for expansion.
23 - 47
Alternatives
The sixth step of designing accounting-based
performance measures is choosing the timing
of feedback.
Timing of feedback depends largely on how
critical the information is for the
success of the organization.
specific level of management involved.
sophistication of the organization.
23 - 48
Indicate the difficulties when
comparing the performance
of divisions operating
in different countries.
23 - 49
Multinational Companies
Example
Assume that Relax Inns
invests in a hotel in
Acapulco, Mexico.
The exchange rate at the
time of the investment on
December 31, 2002, is
8 pesos = 1 dollar.
23 - 50
Example
During 2003, the Mexican peso suffers
a decline in value.
The exchange rate on December 31, 2003,
is 12 pesos = 1 dollar.
What is the average exchange rate during 2003?
(8 + 12) 2 = 10 pesos = 1 dollar
23 - 51
Example
The investment (total assets) in Acapulco
= 32,000,000 pesos.
The operating income of the Acapulco
Hotel in 2003 is 6,200,000 pesos.
What is the return on investment in pesos?
6,200,000 32,000,000 = 19.4%
23 - 52
Example
What is the return on investment in dollars?
6,200,000 10 = $620,000 operating income
32,000,000 8 = $4,000,000 investment
$620,000 $4,000,000 = 15.5%
This is lower than the Boston ROI of 18%.
23 - 53
Recognize the role of
salaries and incentives
when rewarding managers.
23 - 54
The Basic Trade-off
Most often, a managers total

compensation includes some
combination of salary and a
performance-based incentive.
23 - 55
Describe the management
accountants role in helping
organizations design better
incentive systems.
23 - 56
Intensity of Incentives
How large should the incentive component
be relative to salary?
Preferred performance measures are ones
that are sensitive to, or change significantly,
with the managers performance.
23 - 57
Benchmarks
Owners can use benchmarks to
evaluate performance.
Benchmarks representing best
practice may be available inside
or outside the organization.
23 - 58
Measuring
Obtaining performance measures that are more
sensitive to employee performance is critical
for implementing strong incentives.
Many management accounting practices, such
as the design of responsibility centers and the
establishment of financial and nonfinancial
measures, have as their goal better
performance evaluation.
23 - 59
End of Chapter 23
23 - 60

Performance Evaluation (Pengukuran Kinerja)

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Performance Evaluation

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Kebanyakan Scorecard meliputi:

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

$166,000 Operating income

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Economic Value Added

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Economic Value Added

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Economic Value Added

Economic Value Added Example

Economic Value Added Example

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Economic Value Added Example

Economic Value Added Example

Economic Value Added Example

Economic Value Added Example

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Economic Value Added Example

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Choosing the Time Horizon

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Choosing Alternative Definitions

Choosing Alternative Definitions

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Choosing Alternative Definitions

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

The Basic Trade-off

Most often, a managers total

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

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