REDO

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3) Standard cost operating statement
XYZ Limited. Standard cost operating statement for the year:
£ £ £
Budgeted sales (£70 x 1,050,000
15,000)
Budgeted cost of 840,000
sales (£56 x 15,000)
Budgeted 210,000
contribution
Less: budgeted fixed 100,000
overhead
Budgeted profit 110,000
Sales volume profit 28,000 (F)
variance
Standard profit for 138,000
actual sales
Variances: (F) (A)
Sales price 51,000
Direct material usage 15,000
Direct material price 24,400
Direct labor 13,000
efficiency
Direct labor rate 9,680
Variable overhead 5,200
efficiency
Variable overhead 1,200
rate
Fixed overhead 8,000
expenditure
42,600 84,880 42,280 (A)
Actual profit 95,720
Part C: Performance measurement
1) What is a “Balance Scorecard”
According to Velnampy and Balasundaram (2007), the balance score card (BSC) is “a
management system that maps an organization's strategic objectives into performance with four
perspectives: financial, internal business, customers, and learning and growth”. These
perspectives provide pertinent feedback on how well the strategic plan is being implemented,
allowing adjustments to be made as needed. While the BSC method was initially used only by
larger organizations, an increasing number of small businesses are adopting it and seeing
success (Sarkissian, 2019). Jackson (n.d.) argues that the BSC not only gives structure to the
organization’s strategy, making it easier to communicate but also assists employees in

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identifying key objectives, allows employees to gain a better understanding of the strategic
factors and how these factors correlate, thus assisting your employees in understanding how
their personal ambitions relate to the organizational strategy. As stated by Velnampy and
Balasundaram, the BSC consists of four perspectives: financial, internal business, customers,
and learning and growth. As such, we will go over these perspectives.
At the end of the day, most, if not all, of the for-profit organizations, will often prioritize
achieving their financial goals above anything. As a result, the very top perspective should be
about financial goals. Jackson (n.d.) argues that this perspective may include any key objective
related to the company's financial health and operations. These key objectives can include:
revenue growth, cost reduction, profit maximization, etc. The measurements for these key
objectives can range from the revenue percentage from new products, customers, and markets to
cost per unit reduction percentage, etc.
In the Customer perspective of the BSC, managers define the customer and market segments in
which the business unit will compete, as well as the measuring how the business will perform in
these segments (Agarwal, n.d.). The key objectives of this perspective can include: increase in
market share, customer acquisition, satisfaction, retention and profitability, customer value
propositions, etc. These key objectives can be measured by the total sale to new buyers,
customers’ satisfaction ratings, percentage increase in sales from existing userbase, etc.
The Internal business perspective of the Balanced Scorecard evaluates whether the company
have improved their key business processes in order to bring more value to the users. It focuses
on all of the activities and key processes that are required for the company to excel at providing
the value expected by customers in both a productive and efficient manner (shareweb, n.d.).
These key objectives include: process improvements (for example increase in process efficiency
and quality, decrease the process cost and time), post-sale service optimization (for instance,
increase in the service quality and efficiency and decrease in the time and cost, etc.).
The Learning and growth perspective of the Balanced Scorecard is the foundation of any
strategy and focuses on an organization's intangible assets, specifically the internal skills and
capabilities required to support value-creating internal processes (shareweb, n.d.). This
perspective focuses on increasing employee capabilities, motivating and empowering them.
Danijela Jelenic (2011) argues that continuous training and education to catch up with the world
and even predict some future events and trends has become more and more necessary. These
sufficiently trained and qualified employees are the life and blood of the development,
operation and improvement of the company’s overall performance. Jelenic also believes that
employee satisfaction allows a company to increase its productivity, accountability, quality, and
customer service. Ultimately, if a organization wants to meet their customers’ needs and wants,
they must first have qualified and satisfied employees.
2) How CMI Construction Ltd. can use the Balanced Scorecard to measure its
performance
Construction entails the design and construction of the 'built' environment around us, which

3
includes not only skyscrapers, stadiums, and bridges, but also houses, factories, hospitals,
schools, etc. Interior designers create interior spaces that are functional, safe, and aesthetically
pleasing for almost any type of building. According to IBISWorld (2020), due to the pandemic
situation, the Interior Designers industry's revenue is expected to fall 12.8 percent in 2020,
resulting in a 1.7 percent annualized decline for the industry over the next five years. As such,
CMI Construction should look to reduce the company’s operational, service, administration,
and product costs, increase customer retention, increase efficiency, and increase employee
satisfaction rate. The company can do this by applying the four perspectives of the Balanced
Scorecard.

By using the Financial perspective, CMI Construction can measure whether their wide range
of interior facilities and furniture are contributing to the revenue growth or not. This can
be accomplished by looking at the percentage of profit generated by these new products,
their customers, and markets. The company can also look at the prospect of reducing their
operational, service, administration, and product costs. It can be achieved by lowering material
cost by buying materials in bulk, utilize modern technology, etc. The firm can also look into
improving their asset utilization. They can achieve this by understanding their asset’s life cycle,
which is knowing how long you have been using it and how much longer it will last. Coupling
this with knowing how much the asset cost, the company can distinguish which asset is worth
its price. Another way they can achieve this is to conduct regular asset checkup and
maintenance. A periodic review of your assets is essential to determine their current condition,
discover what is needed for their maintenance, repair found issues, and make the necessary
workload adjustments if necessary.
The Customer perspective can help CMI Construction Ltd. gauge their customer satisfaction by
conducting surveys. The results from the surveys then can be collected and used as reference as
to what the company can improve and fix in order to meet their customers’ demands. The
organization can increase its market share by setting themselves apart from the competition and
making it easier for buyers to purchase products from them (Goren, 2017). CMI can achieve
this by lowering their product price relative to competitors. As customers formulate
expectations of what will occur when they hire a contractor, in this case CMI Construction, it is
imperative that the firm does everything in its power to meet those expectations, which in turn
increases their customer satisfaction. High customer satisfaction opens a lot of opportunities for
the company, for example, a satisfied customer is more likely to contact the company for
subsequent contracts, which in turn increases the company’s customer retention rate. Another
possible prospect resulting from high customer satisfaction rate is that customers can spread
good word of mouth of the company, which increases the potential new customers that the firm
can acquire as the new customers are more likely to contract with CMI Construction for their
reputation.
The innovation department of CMI Construction Ltd. can utilize the Internal business
perspective to increase the number of interior facilities and furnitures, evaluate how these
products will fare against their competitors, and decrease the time taken to develop these

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products for the new markets and customers. CMI’s interior and exterior design
divisions can adjust the input and output ratios for the products, manufacture cycle
efficiency, etc. to increase process efficiency, quality and decrease the cost and time
required for the process. The firm’s communication services can measure the input and
output ratios of their services, the time needed for solving customers’ problems, etc. to
decrease service time and cost and increase the efficiency.
In order to satisfy their customers, CMI Construction Ltd. has to utilize the Learning and
growth perspective to aid their employees in their training and growth. Humphrey
(2012) argues that employers will have to be patient with new hires, provide hands-on
learning and personal coaching in order to effectively train their new employees. These
methods can be applied in every division of the organization. In order to determine
employee satisfaction, the firm can conduct employee satisfaction surveys in order to
pinpoint problems that cause unrest among their employees and how the firm can
improve.

Balanced Scorecard Table:

Perspectives Objectives Measures Target
Financial - Reduce the - Asset utilization. - Asset utilization
company’s rate as close to 2.0 as
- Material costs.
operational, service, possible.
administration, and - Percentage of profit
- A reduction of 10-
generated by the new

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 product costs. products, their 20% in material
customers and costs.
- Assess whether new
markets.
products are - New products
contributing to the contributes 20-30%
firms’s revenue of the firm’s revenue
growth growth.
Customer - Differentiate from - How their products’ - Products priced at
competitors. prices compare to 5-10% lower than the
their competitors. competitors.
- Increase customer
retention rate. - Customer - Reach at least 80%
satisfaction survey. satisfaction rate in
the survey.
Internal business - Increase process - Input and output - Reach 80% product
efficiency, quality ratios for the efficiency.
and decrease the cost products, - Reach more than
and time required for manufacture cycle 70% service
the process. efficiency. efficiency.
- Decrease service
- Input and output - Time needed for
time and cost and
increase the ratios of their problem solving
efficiency. services, the time reduces by 20-30%.
needed for solving
customers’
problems.
Learning and growth - Aide employees in Employee Satisfaction rate
training and growth. satisfaction surveys. reach more than 80%
in the survey.
- Increase employee
satisfaction rate.

3) Cause-and-effect relationship

Increase sales Increase profit

Financial

6
 The product is
Increase differentiated from
Increase in market customer the competitors’
Customer
share satisfaction, and buyers can
retention, high easily purchase the
customer product
acquisition rate

Decrease service time Increase process Decrease the

Process and cost and increase efficiency, time taken to
efficiency. quality and develop
decrease the cost products
and time required
for the process

Learning and growth

Employee training,
growth and satisfaction
increase

REFERENCE LIST
Agarwal, H., n.d., Perspectives in Balanced Scorecard (4 Perspectives) [online]
Available at: <https://www.yourarticlelibrary.com/accounting/performance-
measurement/perspectives-in-balanced-scorecard-4-perspectives/53100>. [Accessed on
27 June 2021].
Goren, M., 2017, How to Increase Market Share in the Construction Products Segment
[online] Available at: <https://www.pointtopoint.com/blog/increase-construction-market-
7
share> [Accessed on 27 June 2021].
Humphrey, B., 2012, Training the Construction Challenged [online] Available at:
<https://www.forconstructionpros.com/business/business-
services/article/10704807/training-new-employees-for-the-construction-industry>
[Accessed on 27 June 2021].
IBISWorld, 2020, Interior Designers Industry in the US - Market Research Report
[online] Available at: <https://www.ibisworld.com/united-states/market-research-
reports/interior-designers-industry/> [Accessed on 6 August 2021].

Jackson, T., n.d., A Thorough List Of Balanced Scorecard Advantages & Disadvantages
[online] Available at: <https://www.clearpointstrategy.com/thorough-list-of-balanced-
scorecard-advantages-disadvantages/> [Accessed on 27 June 2021].
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[online] Available at: <https://www.clearpointstrategy.com/balanced-scorecard-financial-
perspective/> [Accessed on 27 June 2021].
Jelenic, D., 2011, THE IMPORTANCE OF KNOWLEDGE MANAGEMENT IN
ORGANIZATIONS – WITH EMPHASIS ON THE BALANCED SCORECARD
LEARNING AND GROWTH PERSPECTIVE [PDF] Available at:
<http://issbs.si/press/ISBN/978-961-92486-3-8/papers/ML11-1.pdf> [Accessed on 27
June 2021].
Shareweb, n.d., Balanced Scorecard [PDF] Available at:
<https://www.shareweb.ch/site/Learning-and-
Networking/sdc_km_tools/Documents/Balanced%20Scorecard.pdf> [Accessed on 27
June 2021].
Sarkissian, A., 2019, Advantages of a Balanced Scorecard [online] Available at:
<https://smallbusiness.chron.com/advantages-balanced-scorecard-59821.html> [Accessed
on 27 June 2021].
Velnampy, T., Balasundaram, N., 2007, Balance Score Card and Organisational Performance:
A Comparative Study of State and Private Sector Banks in North and Eastern Provinces of Sri
Lanka [PDF] Available at:
<https://www.researchgate.net/publication/200707274_Balance_Score_Card_and_Organisationa
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