Chapter 24 Flashcards
Centralized company
A company in which major planning and controlling decisions are made by top go top management
Decentralized company
A company that is divided into business segments, with segment managers making planning and controlling decisions for their segments
Goal congruence
Aligning the goals of business segment managers and other subordinates with the goals of top management
Responsibility center
A part of the organization for which a manager has decision-making authority and accountability for the results of those decisions
Responsibility Accounting system
A system for evaluating the performance of each responsibility center and its manager
Cost center
A responsibility center whose manager is only responsible for controlling costs
Revenue center
A responsibility center whose manager is only responsible for generating revenue
Profit center
A responsibility center whose manager is only responsible for generating revenue and controlling costs and therefore, profits
Investment center
A responsibility center whose manager is only responsible for generating profits and efficiently managing the centers invested capital
Performance evaluation system
A system that provides top management with a framework for maintaining control over the entire organization
Lag indicator
A performance measure the indicates past performance
Lead indicater
A performance measure that forecasts future performance
Balanced scorecard
The performance evaluation system that requires management to consider both financial performance measures and operational performance measures when judging the performance of a company and its subunits
Key performance indicator (KPI)
A summary performance measure that helps managers assess whether the company is achieving its goals
Controllable cost
A cost that a manager has the power to influence by his or her decisions
Return on investment (ROI)
A measure of profitability and efficiency. Operating income / average total assets
Profit margin ratio
A profitability measure that shows how much operating income is earned on every dollar of net sales. Operating income / net sales
Asset turnover ratio
Measures how efficiently a business uses its average total assets to generate sales. Net sales /average total assets
Residual income (RI)
A measure of profitability and efficiency computed as actual operating income less actual a specified minimum acceptable operating income
Transfer price
The transaction amount of one unit of goods when the transaction occurs between divisions within the same company
Market based transfer price
A transfer price based on the current market value of the goods
Opportunity cost
The benefit given up by choosing an alternative course of action
Cost based transfer price
A transfer price based on the cost of producing the goods
