Question

Measuring Performance Performance Evaluation Discussion Scenario Read the following scenario and then thoughtfully discuss the questions. JetSuite, a private jet charter company, prepares the master budget by taking each division manager's estimate of revenues and costs for the coming period and entering the data into the budget without adjustment. At the end of the year, division managers are given a bonus if their actual division profit exceeds the budgeted profit. Discuss • What problems do you see with this system? • What are the dangers of using only business unit measures to evaluate the performance of business unit managers? Recently you overheard a manager at JetSuite saying "If every division manager maximizes divisional income, we will maximize firm income. Therefore, divisional income is the best performance measure."

Answer 1

8aution No 2:- The dangere of wing only businee unit meares uto Evaludäte cthe performance of budiness unit managesu aieas falloos - >Each divisional managelu aregiven abonus, if their actual division proofit exceede the bud get od proffir accooding to the given proobles" Bo they each Joy o'maxinase their pofit sothat they can get bonus for this pusepore, they will estimate loosales aund igh expense. 2 Manager may not tatke new oppostunities, because budget us already fixed and their boms. aid qiven according to the budget.

Balution No1:- In the given pooblem JetSuite, a private jet chauter compary, prepahel Jhe master budget by taking each division mo of revenue cnd costs for the coming pesuod and entercüng the data into the budget with out adjus tment- I found there are Several praobleme with this ystem: - O Each divisio nal ma fosced to achieve the tasiget- Although uthele aole m de in pooblems which may due covue. duppore f the cost of Jeao material Wincoeased athen' the pofit ie affected estimate nanager's nanager is Each divisional (li manager taies to maximise therr divixional refik so that they get bonus. Inthis case, uthey timatelow and highe expenies can eaily achieve revenue 2o that they itheir taseget.