How does an engineered cost differ from a discretionary cost?

Balanced scorecard. (R. Kaplan, adapted) Petrocal, Inc., refines gasoline and sells it through its own Petrocal gas stations. 0 n the basis of market research, Petrocal determines that \(60 \%\) of the overall gasoline market consists of "service-oriented customers," medium- to high-income individuals who are willing to pay a higher price for gas if the gas stations can provide excellent customer service, such as a clean facility, a convenience store, friendly employees, a quick turnaround, the ability to pay by credit card, and high-octane premium gasoline. The remaining \(40 \%\) of the overall market are "price shoppers" who look to buy the cheapest gasoline available. Petrocal's strategy is to focus on the \(60 \%\) of service-oriented customers. Petrocal's balanced scorecard for 2017 follows. For brevity, the initiatives taken under each objective are omitted. $$\begin{array}{lccc} & \text { Target } & \text { Actual } \\ \text { 0bjectives } & \text { Measures } & \text { Performance } & \text { Performance } \\ \hline \text {Financial Perspective} & & & \\ \text { Increase shareholder value } & \text { Operating-income changes from } & & \\ & \text { price recovery } & \$ 80,000,000 & \$ 85,000,000 \\ & \text { Operating-income changes from } & & \\ & \text { growth } & \$ 60,000,000 & \$ 62,000,000 \\ \text {Customer Perspective} & & & \\ \text { Increase market share } & \text { Market share of overall gasoline } & & \\ & \text { market } & 4 \% & 3.8 \% \\ \text { Internal-Business-Process Perspective} & & & \\ \text { Improve gasoline quality } & \text { Quality index } & \text { 92 points } & \text { 93 points } \\ \text { Improve refinery performance } & \text { Refinery-reliability index (\%) } & 91 \% & 91 \% \\ \text { Ensure gasoline availability } & \text { Product-availability index (\%) } & 99 \% & 99.5 \% \\ \text { Learning-and-Growth Perspective } & & & \\ \text { Increase refinery process capability } & \text { Percentage of refinery processes } & & \\ & \text { With advanced controls } & 94 \% & 95 \% \end{array}$$ 1\. Was Petrocal successful in implementing its strategy in \(2017 ?\) Explain your answer. 2\. Would you have included some measure of employee satisfaction and employee training in the learning-and-growth perspective? Are these objectives critical to Petrocal for implementing its strategy? Why or why not? Explain briefly. 3\. Explain how Petrocal did not achieve its target market share in the total gasoline market but still exceeded its financial targets. Is "market share of overall gasoline market" the correct measure of market share? Explain briefly. 4\. Is there a cause-and-effect linkage between improvements in the measures in the internal-businessprocess perspective and the measure in the customer perspective? That is, would you add other measures to the internal-business- process perspective or the customer perspective? Why or why not? Explain briefly. 5\. Do you agree with Petrocal's decision not to include measures of changes in operating income from productivity improvements under the financial perspective of the balanced scorecard? Explain briefly.

What is a partial-productivity measure?

What is reengineering?

Gable Company manufactures wallets from fabric. In 2016 , Gable made 2,160,000 wallets using 1,600,000 yards of fabric. In \(2016,\) Gable has capacity to make 2,448,000 wallets and incurs a cost of \(\$ 8,568,000\) for this capacity. In \(2017,\) Gable plans to make 2,203,200 wallets, make fabric use more efficient, and reduce capacity. Suppose that in 2017 Gable makes 2,203,200 wallets, uses 1,440,000 yards of fabric, and reduces capacity to 2,295,000 wallets at a cost of \(\$ 7,803,000\) 1\. Calculate the partial-productivity ratios for materials and conversion (capacity costs) for 2017 , and compare them to a benchmark for 2016 calculated based on 2017 output. 2\. How can Gable Company use the information from the partial-productivity calculations?

Gianni \& Sons buys T-shirts in bulk, applies its own trendsetting silk-screen designs, and then sells the T-shirts to a number of retailers. Gianni wants to be known for its trendsetting designs, and it wants every teenager to be seen in a distinctive Gianni T-shirt. Gianni presents the following data for its first two years of operations, 2016 and 2017 . Administrative costs depend on the number of customers Gianni has created capacity to support, not on the actual number of customers served. Gianni had 3,600 customers in 2016 and 3,500 customers in 2017 1\. Is Gianni's strategy one of product differentiation or cost leadership? Explain briefly. 2\. Describe briefly the key measures Gianni should include in its balanced scorecard and the reasons for doing so.