Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


Financial and non-financial performance measures, goal congruence



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19.16 Financial and non-financial performance measures, goal congruence.
(25 min)
1
Operating income is a good summary measure of short-term financial performance. By itself, however, it does not indicate whether operating income in the short run was earned by taking actions that would lead to long-run competitive advantage. For example, Thor-Equip’s divisions might be able to increase short-run operating income by producing more product while ignoring quality or rework. Knut, however, would like to see division managers increase operating income without sacrificing quality. The new performance measures take a balanced scorecard approach by evaluating and rewarding managers on the basis of direct measures such as rework costs, on-time delivery performance and sales returns. These motivate managers to take actions that Knut believes will increase operating income now and in the future. The non-operating income measures serve as surrogate measures of future profitability.
2
The semiannual installments and total bonus for the Kari Division are calculated as follows

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