Chapter 10 Budgetary Planning and Control

Transcription

1 Chapter 10 Budgetary Planning and Control QUESTIONS 1. Budgets are useful in the planning process because they increase communication and coordination. Also, they force managers to carefully consider their goals and means to achieve them. 2. Budgets are useful in the control process because they provide benchmarks for evaluating performance. 3. In a top-down approach, budgets are prepared by high level managers without much input from subordinates. In a bottom-up approach, budgets are set with substantial input from subordinates. 4. In a zero-based budget, expenses are justified afresh in each budgeting period. Thus, no continuing project or activity receives funding automatically. 5. A spreadsheet allows you to change assumptions quickly and easily, facilitating what-if analysis. You can set up the spreadsheet with formulas representing your assumptions. Then you can change the assumptions in one cell and the spreadsheet will update automatically. 6. Cash receipt and disbursement budgets are prepared so that necessary loans can be arranged to deal with cash shortages (or so that the company can plan to deal with cash surpluses). 7. A static budget is a budget for one anticipated level of business activity. A flexible budget is a set of budget relationships that can be used to prepare budgets for various activity levels. 8. The costs of spoilage, rework, warranty repairs, and returns are some of the financial measures that capture the effect of defects in a process. 9. In absence of budgets, performance in a period might be compared to performance in prior periods to evaluate positive or negative trends. 10. Effective planning requires that managers provide truthful information and estimates for setting budgets. However, because a manager s performance may be evaluated in comparison to a budget, he or she has an incentive to provide biased information so that budget goals are easier to achieve. Thus, there is inherent conflict between the planning and control uses of budgets.

2 10-2 Jiambalvo Managerial Accounting EXERCISES E1. If a manager knows that income will exceed the upper bound, he/she may shift income to the next period to increase budget-based compensation in that period. If a manager knows that income will be below the lower bound, he/she may shift income from the next period to obtain the hurdle and variable bonus. E2. Budgets can be padded by decreasing revenue estimates and increasing expense estimates. Padding makes it more likely that a manager will receive the hurdle bonus and the maximum variable bonus. E3. The following features are listed on the Hyperion Web site. Scalable Web infrastructure enables flexible data entry, analysis and frequent real-time updates from anywhere, using a standard Web browser. Powerful workflow and process management including notification and alerts empowers users to track and communicate the progress of their plans and budgets; create, validate and change plans; identify bottlenecks; conduct what if analysis and scenario testing. Flexible modeling and business rules and easy-to-use graphical interface creates and communicates corporate and user-defined rules and assumptions, complex calculations, company standards and allocations at all levels. Set toplevel targets, test scenarios, and perform detailed bottom up calculations. Supporting Plan Details from the web browser, users can add their own supporting detail to aggregated lines such as travel and construct their own supporting plan, that they can drill-down to an alternative stage and adjust if necessary. Powerful reporting and analysis empowers users to check progress of each planning unit, analyze variances and change plans in real-time, all from a central data platform.

3 Chapter 10 Budgetary Planning and Control 10-3 E4. b, d, a, and c. E5. Locksafe Company Sales Budget For the Year Ending December 31, 2007 First Second Third Fourth Quarter Quarter Quarter Quarter Year Sales for 2006 in units 21,000 26,000 25,000 30, ,000 Projected sales at 130% of prior year 27,300 33,800 32,500 39, ,600 Sales price per unit $ 20 $ 20 $ 20 $ 20 $ 20 Budgeted revenue for 2007 $546,000 $676,000 $650,000 $780,000 $2,652,000 E6. Sunny M Production Budget January February March Quarter Unit sales 15,600 16,500 16,000 48,100 Plus desired ending inventory of finished units 1,650 1,600 1,850* 1,850 Total needed 17,250 18,100 17,850 49,950 Less beginning inventory of finished units 1,600 1,650 1,600 1,600 Units to be produced 15,650 16,450 16,250 48,350 *Equals 10% of April sales of 18,500 units.

4 10-4 Jiambalvo Managerial Accounting E7. Ajax Chemical Company Direct Materials Purchases Budget For the Year Ending December 31, 2006 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Units to be produced 46,000 42,000 50,000 39, ,000 Cost of raw material per unit (4 $4) $ 16 $ 16 $ 16 $ 16 $ 16 Cost of raw material needed for production $736,000 $672,000 $800,000 $624,000 $2,832,000 Add desired ending inventory of raw material a 201, , , , ,400 Total material needed 937, , , ,400 3,062,400 Less beginning inventory of raw material 180, , , , ,000 Required raw material purchases $757,600 $710,400 $747,200 $667,200 $2,882,400 a Equals 30% of next quarter s material requirements.

5 Chapter 10 Budgetary Planning and Control 10-5 E8. Ajax Chemical Company Direct Labor Budget For the Year Ending December 31, 2006 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Labor hours per unit Labor rate per hour $ 20 $ 20 $ 20 $ 20 $ 20 Labor cost per unit Units to be produced 46,000 42,000 50,000 39, ,000 Labor cost $2,300,000 $2,100,000 $2,500,000 $1,950,000 $8,850,000 Total hours 115, , ,000 97,500 Average hours per quarter Approximate number of employees needed

6 10-6 Jiambalvo Managerial Accounting E9. Ajax Chemical Company Manufacturing Overhead Budget For the Year Ending December 31, 2006 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Units to be produced 46,000 42,000 50,000 39, ,000 Variable costs: Indirect material ($2.25/unit) $103,500 $ 94,500 $112,500 $ 87,750 $ 398,250 Indirect labor ($1.50/unit) 69,000 63,000 75,000 58, ,500 Utilities ($1.00/unit) 46,000 42,000 50,000 39, ,000 Total variable overhead 218, , , , ,750 Fixed Costs: Supervisory salaries 80,000 80,000 80,000 80, ,000 Factory depreciation 30,000 30,000 30,000 30, ,000 Other 4,100 4,100 4,100 4,100 16,400 Total fixed overhead 114, , , , ,400 Total overhead $332,600 $313,600 $351,600 $299,350 $1,297,150

7 Chapter 10 Budgetary Planning and Control 10-7 E10. January February March Collection of credit sales Collection of December sales $20,000 Collection of January sales 48,000 Collection of January sales $12,000 Collection of February sales 64,000 Collection of February sales $16,000 Collection of March sales 72,000 $68,000 $76,000 $88,000 E11. Cash disbursements for purchases January February March Payment of December purchases $63,000 Payment of January purchases 4,200 Payment of January purchases $37,800 Payment of February purchases 5,600 Payment of February purchases $50,400 Payment of March purchases 6,300 $67,200 $43,400 $56,700

8 10-8 Jiambalvo Managerial Accounting E12. April May June Collection of credit sales Collection of February sales $17,000 Collection of March sales 28,500 Collection of April sales 37,500 Collection of March sales $19,000 Collection of April sales 22,500 Collection of May sales 42,500 Collection of April sales $15,000 Collection of May sales 25,500 Collection of June sales 54,000 $83,000 $84,000 $94,500 E13. Cash disbursements for purchases April May June Payment of March purchases $40,000 Payment of April purchases 11,000 Payment of April purchases $44,000 Payment of May purchases 13,000 Payment of May purchases $52,000 Payment of June purchases 17,600 $51,000 $57,000 $69,600

9 Chapter 10 Budgetary Planning and Control 10-9 E14. Variable costs: Direct material $5.30 Direct labor 2.50 Variable overhead 1.20 Variable cost per unit $9.00 Fixed costs: Supervisory salaries $14,000 Depreciation 8,500 Other fixed costs 1,100 Fixed costs per month $23,600 Manufacturing costs for 8,000 units = $9 (8,000) + $23,600 = $95,600. Manufacturing costs for 10,000 units = $9 (10,000) + $23,600 = $113,600. Manufacturing costs for 12,000 units = $9 (12,000) + $23,600 = $131,600. E15. Flexible Budget Actual Difference Number of units 12,000 12,000 0 Variable costs: Direct material $ 63,600 $ 71,900 $8,300 Direct labor 30,000 28,500 (1,500) Variable overhead 14,400 15, , ,700 7,700 Fixed costs: Supervisory salaries 14,000 13,750 (250) Depreciation 8,500 8,500 0 Other fixed costs 1,100 1, ,600 23, Total overhead $131,600 $139,310 $7,710

10 10-10 Jiambalvo Managerial Accounting E16. The following performance report assumes that material and labor are variable costs and the remaining costs are fixed. Flexible Budget Actual Difference Sales $600,000 $600,000 $ 0 Variable costs: Material $120,000 $119,000 ($ 1,000) Labor 240, ,000 20, , ,000 19,000 Fixed costs: Owner s salary 60,000 60,000 0 Rent 50,000 50,000 0 Depreciation 40,000 40,000 0 Utilities 20,000 19,000 ( 1,000) 170, ,000 ( 1,000) Total cost $530,000 $548,000 $18,000 The only expense that Girard should focus on is labor it is $20,000 (8.33%) higher than the flexible budget. E17. Walter has an incentive to understate revenue and overstate expense in his budget. With biased estimates, it will be easier to beat the budget and achieve a bonus.

11 Chapter 10 Budgetary Planning and Control PROBLEMS P1. a. Sales $525,000 5% increase over prior quarter Less variable cost of sales 315,000 5% increase over prior quarter Contribution margin 210,000 Less fixed production costs $101,840 $8, ($100,000 - $8,000) Less fixed selling and administrative expenses 50, ,700 $7, ($50,000 - $7,000) Income before taxes 57,300 Less taxes on income 22,920 40% of income before taxes Net income $ 34,380 b. Cash collected from sales: (.5 x $500, x $525,000) $512,500 Cash payments: Payment of material (.4 x $300,000 x.4) + (.4 x $315,000 x.6) $123,600 Payment for labor (.4 x $315,000) 126,000 Payment for variable overhead (.2 x $315,000) 63,000 Payment for fixed production costs ($101,840 - $8,000) 93,840 Payment for fixed sell. and adm. expense ($50,860 - $7,000) 43,860 Payment of income taxes 22, ,220 $ 39,280 Plus beginning cash balance 150,000 Ending cash balance $189,280

12 10-12 Jiambalvo Managerial Accounting c. Assets: Cash $ 189,280 Accounts receivable 262,500.5 x $525,000 Inventory 350,000 No change Total current assets 801,780 Property, plant, and equipment 400,000 Less accumulated depreciation (115,000) $100,000 + $8,000 + $7,000 Total assets $1,086,780 Liabilities and owners equity Accounts payable $ 50,400.4 x.4 x $315,000 Common stock 500,000 Retained earnings 536,380 $502,000 + $34,380 Total liabilities and $1,086,780 owners equity

13 Chapter 10 Budgetary Planning and Control P2. Part A: Budgeted Cash Receipts and Disbursements For January 2007 Cash receipts Collection of December 2006 tuition $30, Collection of January 2007 tuition 35, Total cash receipts 65, Cash Disbursements Payment of salaries 30, Payment of rent 2, Payment of utilities Payment of other expenses 1, Payment for purchases of computer equipment 30, Payment of interest on note Payment of taxes 10, Total cash disbursements (74,796.05) Plus beginning cash balance 40, Ending cash balance $30,203.95

14 10-14 Jiambalvo Managerial Accounting Part B. Budgeted Income Statement For January 2007 Tuition revenue $70, Less: Salaries $30, Rent 2, Utilities Other Expenses 1, Depreciation 5, Interest expense Total expense 38, Income before taxes 31, Taxes on income 10, Net income $20,203.95

15 Chapter 10 Budgetary Planning and Control Part C. Budgeted Balance Sheet As of January 30, 2007 Assets Cash $ 30, Accounts receivable 35, Equipment (net) 115, Total assets $180, Liabilities Accounts payable $ 20, Note payable 50, Total liabilities 70, Owner equity Retained earnings 90, Common stock 20, Total owner s equity Total liabilities and owner s equity $180,203.95

16 10-16 Jiambalvo Managerial Accounting P3. a. Botanical Soap Company Budgeted Income Statement for the First Quarter, 2007 Sales ($200, ) $220,000 Less cost of sales (50% of sales) 110,000 Gross margin 110,000 Less selling, general and administrative expenses ($7,000 increase) 47,000 Income before taxes 63,000 Less income taxes (35%) 22,050 Net Income $ 40,950

17 Chapter 10 Budgetary Planning and Control b. Botanical Soap Company Cash receipts and disbursements budget for the First Quarter, 2007 Cash Receipts Collections of sales: 10% of Quarter 4, 2006 sales $ 20,000 90% of Quarter 1, 2007 sales 198,000 Total cash receipts $218,000 Cash Disbursements Payment for inventory purchases 20% of Quarter 4, 2006 purchases 16,000 80% of Quarter 1, 2007 purchases* 94,600 Selling, general and adm. expenses (excludes $1,000 of depreciation) 46,000 Income taxes 22,050 Total disbursements (178,650) Plus beginning cash balance 24,000 Ending Cash balance $ 63,350 *Beginning inventory in 2007 is $82,500. Cost of goods sold in the first quarter is $110,000 (50% of $220,000 sales). Ending inventory is $90,750 [75% of $121,000 (cost of goods sold in second quarter of 2007)]. Thus, purchases in the first quarter of 2007 are $118,250 (cost of goods sold plus ending inventory minus beginning inventory).

18 10-18 Jiambalvo Managerial Accounting c. Botanical Soap Company Budgeted Balance Sheet As at the end of the First Quarter, 2007 Assets: Cash (from cash receipts and disbursements budget) $ 63,350 Accounts receivable (10% of first quarter, 2007 sales) 22,000 Inventory (75% of cost of sales in second quarter of 2007 $121,000) 90,750 Furniture and fixtures ($40,000 less $1,000 depreciation) 39,000 Total assets $215,100 Liabilities: Accounts payable (20% of purchases in first quarter of 2007 $118,250) $ 23,650 Stockholder's equity: Common stock 60,000 Retained earnings ($90,500 plus net income) 131,450 Total stockholder's equity 191,450 Total liabilities and stockholder's equity $215,100 d. As the ending cash balance for January is $63,350, a minimum desired cash balance of $25,000 will leave only $38,350 for opening the store. However, a store opening requires $40,000. Thus, the company requires a small amount of additional cash to open the store.

19 Chapter 10 Budgetary Planning and Control P4. Modern Healthcare Budgeted Income for 2007 Revenue (decrease of 5 percent) $2,280,000 Less operating expenses: Salaries Physicians(no change) 1,000,000 Physician assistant (new position) 70,000 Nurses (no change) 140,000 Nursing aid (no change) 62,375 Receptionist (no change) 45,200 Accounting services (no change) 34,450 Training (increase of $15,000) 170,000 Supplies (increase to 8.5 percent of revenue) 193,800 Phone and fax (no change) 2,500 Insurance (no change) 250,000 Depreciation on office and equipment (increase of $20,000) 220,000 Utilities (increase of 5 percent) 18,900 Miscellaneous (increase of 5 percent) 63,000 Total operating expenses 2,270,225 Income before taxes 9,775 Less taxes on income (35 percent) 3,421 Net income $ 6,354

20 10-20 Jiambalvo Managerial Accounting P5. a. BugAway Inc Production Budget for 2007 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Unit sales 40,000 50,000 93,000 36, ,000 Plus: Desired ending inventory of finished units (20% of next quarter sales) 10,000 18,600 7,200 12,000 12,000 Total needed 50,000 68, ,200 48, ,000 Less: beginning inventory of finished units 11,000 10,000 18,600 7,200 11,000 Units to be produced 39,000 58,600 81,600 40, ,000

21 Chapter 10 Budgetary Planning and Control b. BugAway Inc Material Purchases Budget 2007 Chemical A Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Units to be produced 39,000 58,600 81,600 40, ,000 Ounces of chemical A per unit Ounces of chemical A required 234, , , ,800 1,320,000 for production Plus desired ending inventory of chemical A (15% of next quarter production needs) 52,740 73,440 36,720 60,000 60,000 Total needed 286, , , ,800 1,380,000 Less: beginning inventory of finished units 57,000 52,740 73,440 36,720 57,000 Ounces to be purchased 229, , , ,080 1,323,000 Cost per ounce $0.12 $0.12 $0.12 $0.12 $0.12 Cost of purchases of chemical A $27, $44, $54, $32, $158,760.00

22 10-22 Jiambalvo Managerial Accounting c. BugAway Inc Material Purchases Budget 2007 Chemical B Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Units to be produced 39,000 58,600 81,600 40, ,000 Ounces of chemical B per unit Ounces of chemical B required 390, , , ,000 2,200,000 for production Plus desired ending inventory of chemical B (15% of next quarter production needs) 87, ,400 61, , ,000 Total needed 477, , , ,000 2,302,000 Less: beginning inventory of finished units 97,000 87, ,400 61,200 97,000 Ounces to be purchased 380, , , ,800 2,205,000 Cost per ounce $0.09 $0.09 $0.09 $0.09 $0.09 Cost of purchases of chemical B $34, $55, $67, $40, $198,450.00

23 Chapter 10 Budgetary Planning and Control d. BugAway Inc Budgeted Income, 2007 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Sales $398,000 $497,500 $925,350 $358,200 $2,179,050 Less variable costs: Variable cost of goods sold 124, , , , ,280 Variable selling and adm. 15,920 19,900 37,014 14,328 87,162 Contribution margin 257, , , ,552 1,408,608 Less fixed costs: Fixed production costs 40,000 40,000 40,000 40, ,000 Fixed selling and adm. 50,000 50,000 50,000 50, ,000 Net income $167,280 $231,600 $508,176 $141,552 $1,048,608 Variable cost of sales per bottle: Chemical A $ 0.72 Chemical B 0.90 Direct labor 0.60 Variable overhead 0.90 Total $3.12

24 10-24 Jiambalvo Managerial Accounting P6. Casey Wholesalers Cash Receipts and Disbursements Budget, 2007 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Cash receipts Collection of credit sales: Collection of previous quarter's sales (40%) $200,000 $240,000 $280,000 $320,000 $1,040,000 Collection of current quarter's sales (60%) 360, , , ,000 1,800,000 Total cash receipts 560, , , ,000 2,840,000 Cash disbursements Payment for purchases: Payment of previous quarter's purchases (20%) 60,000 70,000 80,000 90, ,000 Payment of current quarter's purchases (80%) 280, , , ,000 1,348,000 Payment for selling and adm. expenses: (excludes depreciation of $10,000) 190, , , , ,000 Payment for capital expenditure ,000 50,000 Payment of taxes* 35,000 52,500 70,000 87, ,000 Total cash disbursements 565, , , ,500 2,703,000 Excess of receipts over disbursements ($5,000) $ 27,500 $ 60,000 $ 54,500 $ 137,000 * Taxes equal 35 percent of pretax income. For quarter 1, pretax income equals $100,000 [Sales ($600,000) minus cost of sales (300,000), minus selling and administrative expense (200,000)].

25 P7. Chapter 10 Budgetary Planning and Control Step 1 Expected sales in 2007 = (1.25 sales of the same quarter previous year) Step 2 Cost of sales = (.6 Expected Sales) Step 3 Ending inventory = (.5 cost of sales next quarter) Step 4 Beginning inventory = Previous quarter's ending inventory Step 5 Purchases = Cost of sales + ending inventory - beginning inventory Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Q-1, 2008 Sales in 2006 $200,000 $250,000 $300,000 $400,000 $1,150,000 Expected sales in , , , ,000 1,437,500 $280,000 Cost of sales 150, , , ,000 $862, ,000 Plus Ending inventory 93, , ,000 84,000 84,000 Less Beginning Inventory 75,000 93, , ,000 75,000 Equals Purchases $168,750 $206,250 $262,500 $234,000 $ 871,500

26 10-26 Jiambalvo Managerial Accounting P 8. Results for basic assumption: Q1, 2006 Q2, 2006 Q3, 2006 Q4, 2006 Sales 200, , , , Sales growth 1.10 Desired ending inventory % 0.20 Cost of sales % 0.30 Q1, 2007 Q2, 2007 Q3, 2007 Q4, 2007 Q1, 2008 Sales 220, , , , , Cost of sales 66, , , , , Plus desired ending inventory 13, , , , Less beginning inventory 66, , , , Purchases 13, , , , Results for combination 1: Q1, 2006 Q2, 2006 Q3, 2006 Q4, 2006 Sales 200, , , , Sales growth 1.10 Desired ending inventory % 0.22 Cost of sales % 0.33 Q1, 2007 Q2, 2007 Q3, 2007 Q4, 2007 Q1, 2008 Sales 220, , , , , Cost of sales 72, , , , , Plus desired ending inventory 16, , , , Less beginning inventory 66, , , , Purchases 23, , , ,950.10

27 Chapter 10 Budgetary Planning and Control Results for combination 2: Q1, 2006 Q2, 2006 Q3, 2006 Q4, 2006 Sales 200, , , , Sales growth 1.15 Desired ending inventory % 0.24 Cost of sales % 0.28 Q1, 2007 Q2, 2007 Q3, 2007 Q4, 2007 Q1, 2008 Sales 230, , , , , Cost of sales 64, , , , , Plus desired ending inventory 16, , , , Less beginning inventory 66, , , , Purchases 14, , , , Results for combination 3: Q1, 2006 Q2, 2006 Q3, 2006 Q4, 2006 Sales 200, , , , Sales growth 1.09 Desired ending inventory % 0.34 Cost of sales % 0.40 Q1, 2007 Q2, 2007 Q3, 2007 Q4, 2007 Q1, 2008 Sales 218, , , , , Cost of sales 87, , , , , Plus desired ending inventory 31, , , , Less beginning inventory 66, , , , Purchases 52, , , ,551.92

28 10-28 Jiambalvo Managerial Accounting P9. a. Both individuals are fighting for their self-interests, which are in conflict. Debra wants budgeted revenue low and budgeted expenses high so that she can easily achieve income goals that affect her bonus. Barney is interested in the accuracy of budget numbers (i.e., he is interested in developing a realistic plan) and making sure that Debra does not receive bonus compensation that is not justified (at least, in his opinion). b. One option for the President is to ask Debra and Barney to bring all relevant information to the table and make sure they understand each other s position. He should also ask for information on the factors controllable and uncontrollable that contributed to the exceptional performance in 2006, and whether or not they are likely to continue in Then, the president may let Debra and Barney reach an agreement or set a budget according to his/her own best judgment.

29 Chapter 10 Budgetary Planning and Control P10. a. Assumptions: Salaries of customer consultants are variable costs. Salaries of supervisors, office space expense, and depreciation are fixed costs. 12,000 calls 12,000 calls Flex. Budget Actual Difference Salaries of customer consultants $144,000 $160,000 $16,000 Salaries of supervisors 18,000 17,500 (500) Office space charge 5,000 5,000 0 Depreciation of equipment 4,000 5,000 1,000 Total $171,000 $187,500 $(16,500) b. It appears that variances for salaries of customer consultants and depreciation of equipment are significant variances at about 11 percent and 25 percent of the flexible budget amounts. Some possible explanations: Call volume increased by 20 percent, this may have resulted in overtime premium paid to existing customer consultants. Or, possibly, additional consultants were hired at higher salaries. Possibly, additional consultants required additional telecom equipment. That might explain most of the increase in depreciation expense. c. Relevant non-financial measures might include: number of calls answered, average customer waiting time for a response, average duration of call, number of repeat calls for the same problem, level of customer satisfaction, and the number of customer complaints related to customer service.

30 10-30 Jiambalvo Managerial Accounting P11. The variances are favorable because the budget has not been adjusted for the actual number of units produced (which is less than planned). A flexible budget may indicate that actual costs are higher than expected (once the budget is adjusted for the actual level of production) The president is not likely to be impressed by favorable cost variances that are simply due to producing less than planned especially if the lower output is due to quality problems in manufacturing! P12. a. Budget padding involves biasing estimates of sales downward and expenses upward so that actual profit is more likely to exceed budgeted profit. Jack has an incentive to pad his budget because exceeding the budget increases his budget-based bonus compensation. Budget padding may hurt company performance if the budget is less useful in terms of coordinating internal activities. This would be the case if the purchasing department bought too little material because they purchased a quantity consistent with budgeted sales (which are biased downward). b. The budget was set at $40,000,000 and budget compensation is capped when actual profit is more than 120% of budget or $48,000,000. Thus, there is no need to have profit higher than this amount. By delaying shipments for the last two weeks, Jack can shift the excess profit to the next quarter helping to ensure that he will maximize his bonus that quarter. This action could hurt shareholder value if customers become upset that they do not receive orders on time. P Customer satisfaction rating based on market survey data 2. Percent of orders delivered at customers requested delivery date 3. Production defect rate 4. Percent of sales related to new products (a product innovation measure)