Noreen, E., Brewer, P., & Garrison, R. (2016). Ma

Noreen, E., Brewer, P., & Garrison, R. (2016). Managerial accounting for managers. (4th ed.). McGraw-Hill  ISBN:  9781308886718
CASE 12–23 Balanced Scorecard [LO 12–4]

Haglund Department Store is located in the downtown area of a small city. While the store had been profitable for many years, it is facing increasing competition from large national chains that have set up stores on the outskirts of the city. Recently the downtown area has been undergoing revitalization, and the owners of Haglund Department Store are somewhat optimistic that profitability can be restored.

In an attempt to accelerate the return to profitability, management of Haglund Department Store is in the process of designing a balanced scorecard for the company. Management believes the company should focus on two key problems. First, customers are taking longer and longer to pay the bills they incur using the department store’s charge card, and the company has far more bad debts than are normal for the industry. If this problem were solved, the company would have more cash to make much needed renovations. Investigation has revealed that much of the problem with late payments and unpaid bills results from customers disputing incorrect charges on their bills. These incorrect charges usually occur because salesclerks incorrectly enter data on the charge account slip. Second, the company has been incurring large losses on unsold seasonal apparel. Such items are ordinarily resold at a loss to discount stores that specialize in such distress items.

The meeting in which the balanced scorecard approach was discussed was disorganized and ineffectively led—possibly because no one other than one of the vice presidents had read anything about how to build a balanced scorecard. Nevertheless, a number of potential performance measures were suggested by various managers. These potential performance measures are:

1. Percentage of charge account bills containing      errors.
2. Percentage of salesclerks trained to correctly enter      data on charge account slips.
3. Average age of accounts receivables.Page 557
4. Profit per employee.
5. Customer satisfaction with accuracy of charge      account bills from monthly customer survey.
6. Total sales revenue.
7. Sales per employee.
8. Travel expenses for buyers for trips to fashion      shows.
9. Unsold inventory at the end of the season as a      percentage of total cost of sales.
10. Courtesy shown by junior staff members to senior      staff members based on surveys of senior staff.
11. Percentage of suppliers making just-in-time      deliveries.
12. Sales per square foot of floor space.
13. Written-off accounts receivable (bad debts) as a      percentage of sales.
14. Quality of food in the staff cafeteria based on      staff surveys.
15. Percentage of employees who have attended the city’s      cultural diversity workshop.
16. Total profit.

Required:

1. As someone with more knowledge of the balanced scorecard than almost      anyone else in the company, you have been asked to build an integrated      balanced scorecard. In your scorecard, use only performance measures      listed previously. You do not have to use all of the performance measures      suggested by the managers, but you should build a balanced scorecard that      reveals a strategy for dealing with the problems with accounts receivable      and with unsold merchandise. Construct the balanced scorecard following      the format used in Exhibit 12–5. Do not be concerned      with whether a specific performance measure falls within the learning and      growth, internal business process, customer, or financial perspective.      However, use arrows to show the causal links between performance measures      within your balanced scorecard and explain whether the performance      measures should show increases or decreases.
2. Assume that the company adopts your balanced      scorecard. After operating for a year, some performance measures show      improvements, but not others. What should management do next?

a. Suppose that customers express greater satisfaction with the accuracy of their charge account bills but the performance measures for the average age of accounts receivable and for bad debts do not improve. Explain why this might happen.

b. Suppose that the performance measures for the average age of accounts receivable, bad debts, and unsold inventory improve, but total profits do not. Explain why this might happen. Assume in your answer that the explanation lies within the company.