Performance Indicators

Performance Indicators

Question 11

Identify each item under Workings as financial or a non financial performance indicator by placing a check in the appropriate column, giving your reason.

Item

Non-Financial

Financial

Reason

1. Gross Profit of the cosmetic section of XYZ Department Store was $12,000 for May

 

v

Gross Profit is calculated after the deduction of Cost of Goods Sold and the gross profit show how much is left after deducting the COGS. It also shows that how much portion of the sale consists of Cost of Goods sold.

2. ABC Motor Car Company repaired five cars under warranty in June

v

 

This is due to the troubleshooting in the car and this case is related to the quality of manufacturing of the parts of car

3. There were three complaints made about customer service by The Super Market during the past week

v

 

This is related to the customer service that is being provided and this is a non financial issue and not a financial performance indicator

4. Net profit of XYZ Department Store was $72,000 for May

 

v

Net Profit is a financial performance indicator and it is considered as a main performance indicator for any business because business is being carried out with a purpose of earning profit.

5. 8% of the inspected toys were rejected by the inspection department of the Rubber Toy Manufacturing Company in the month of September.

v

 

This is a non financial performance indicator and it is related to the production of the goods this is being carried out in the company. This is an issue of Quality assurance and it is related to the quality of production which can relate to the quality of raw material that is being used, quality of labor force and their efficiency in production. This can also result from the ineffective or inefficient means of production.

Question 12

Determine the appropriate performance indicators in the following cases:

Gross profits for the months of April and May were $ 180,000 and $ 220,000. Respectively. Sales for the same months were $ 360,000 and $ 400,000, respectively.

Answer

In this case the gross profit is the performance indicator. Gross profit for any organization holds a very important position because it is an indicator of efficiency of management while using the raw material and labor in the process of production. Gross profit represents the profitability of the company and this is the reason and purpose of existence of any business or firm in the market. The gross profit in April is $ 180,000 and the Sales in April is $ 360,000, which means that the gross profit margin is 50% of sales. And in the next month which is May, the gross profit is $ 220,000 and the respective sale in that month is $400,000, which means that the gross profit margin is 55%. If we analyze both the months then the gross profit has been increased by 5% in the month of May as compared to the last month of April. The cost of goods sold in both the months is same which $ 180,000 is. Which clearly shows that this is due to ...