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Accounting II > Chapter 11 Performance Measurement In Decentralized Org > Flashcards

Chapter 11 Performance Measurement In Decentralized Org Flashcards

0
Q

Net operating income?

A

Income before interest and taxes. Aka EBIT

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1
Q

Return on investment formula?

A

ROI = net operating income/average operating assets

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2
Q

Operating assets?

A

Cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes

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3
Q

Average of operating assets?

A

Add beginning to ending assets and divide by two

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4
Q

Another formula for ROI?

A

ROI = margin x turnover

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5
Q

Margin?

A

Margin = net operating income/sales.

Tells how much of every sales dollar can be kept as net operating income.

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6
Q

Turnover?

A

Turnover = sales/average operating assets

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7
Q

Residual income?

A

Income earned above the minimum required return on its operating assets.

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8
Q

Formula for residual income?

A

= net op income - (average op assets x min required rate of return)

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9
Q

Decentralized organization?

A

Decision-making authority is spread throughout the org rather than confined to top executives

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10
Q

Advantages of decentralization? (5)

A
  1. Top management can focus on larger issues
  2. Low-level management have the most info on day to day ops
  3. Orgs can respond more quickly to customers and changes
  4. Helps train low level management for higher positions
  5. Increases lower level managers motivation and job satisfaction
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11
Q

Disadvantages of decentralization? (3)

A
  1. Low level managers may make decisions without understanding the company’s overall strategy
  2. Coordination may be lacking if low level managers don’t decide together
  3. Low level managers objectives may clash with orgs objectives
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12
Q

Does responsibility accounting link lower level managers to the outcomes of their decisions?

A

Yes

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13
Q

Responsibility center?

A

Used for any part of an org whose manager has control over and is accountable for cost, profit, or investments

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14
Q

Cost center?

A

Managers here have control over both costs and revenue

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15
Q

Profit center?

A

Managers control costs and revenues

16
Q

Investment center?

A

Manager controls cost, revenue, and investments

- responsible for earning an adequate return on investment

17
Q

How to increase margin?

A

Reduce costs.

18
Q

How can increase turnover? (3)

A

Reduce average op assets, increase net op income, increase sales

19
Q

What happens when use net book value of depreciable assets to calculate average op assets?

A

Net book value decreases over time as accumulated depreciation increases
- decreases denominator in the ROI formula so increases ROI

20
Q

What happens when use Gross cost of the asset?

A

Ignores accumulated depreciation.

Stays constant over time.

21
Q

Economic value added?

A

An adaptation of residual income adopted by many companies

22
Q

Delivery cycle time?

A

Amount of time from when a customer order is received to when the completed order is shipped

23
Q

Formula for delivery cycle time?

A

= wait time + throughput time

24
Q

Throughput time?

A

Amount of time required to turn raw materials into completed products. Aka mfg cycle time

25
Q

The four parts of throughput time?

A

Process - amount of time work is done
Inspection - ensuring not defective
Move - from station to station
Queue - time spent waiting

26
Q

Formula for throughput time?

A

= process + inspection + move + queue

27
Q

Manufacturing cycle efficiency formula?

A

Value added time/throughput time

AKA process time/throughput time

28
Q

What is a balanced scorecard?

A

Integrated set of performance measures that are derived from and support a co’s strategy
- translate strategy into performance measures employees can understand and influence

29
Q

4 sections of performance measures?

A

Financial
Customer
Internal business processes
Learning and growth

30
Q

Balanced scorecard relies on financial as well as non-financial measures?

A

Yes

31
Q

How are the performance measures linked together?

A

Cause and effect basis

32
Q

Should incentive compensation be linked to balanced scorecard measures?

A

Yes

Accounting II (8 decks)

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