Kretzinger Company Makes Extensive Use of Financial Performance Reports for Each

question 60

Essay

Kretzinger Company makes extensive use of financial performance reports for each of its departments.Although most departments have been reporting favourable cost variances with the company's current inventory system, management is concerned about the overall performance of the purchasing and production departments.For example, the following information is for the purchasing of materials for a product the company has been manufacturing for several years:
Required:
a.Compute the inventory turnover for each year.Can any conclusions be drawn for a yearly comparison of the purchase price variance and the inventory turnover?
b.Identify problems likely to be caused by evaluating purchasing only on the basis of the purchase price variance.
c.Management has been relying almost exclusively on variances for performance measurement.What recommendations can you suggest to improve the evaluation process?

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Definitions:

Administrative

Pertaining to the organization, management, or execution of office tasks, policies, or procedures within a business or institution.

Developmental

Pertaining to growth, progress, or advancement in skills, knowledge, or capabilities.

Interpersonal Skills

Abilities that facilitate effective communication and interaction with others, such as empathy, active listening, and conflict resolution.

Halo Error

A cognitive bias in performance appraisals where an evaluator's overall impression of a person influences their judgement about specific traits or attributes.