Chapter 9 Flashcards
What are five advantages of decentralilzation
- Frees up top managements time
- Supports use of expert knowledge
- Improves customer relations
- Provides training
- Improves motivation and retention
What are disadvantages of decentralization
Duplication of costs
Problems achieving goal congruence
When segment managers’ goals align with top managements goals
goal congruence
A part of the organization for which manger has decision-making authority and accountability for the results of thoses decisions
Responsibility centers
A system for evaluating the performance of each responsibility center and its manager
responsibility accounting system
What are the four types of responsibility centers
- Cost center
- Revenue center
- Profit center
- Investment center
A responsibility center whose manager is only responsible for controlling cost
Cost center
A responsibility center whose manager is only responsible for generating revenue
Revenue Center
A responsibility center whos manger is responsible for generating revenue and controlling costs and, therefore, profits.
Profit center
A responsibility center whose manager is responsible for generating profits and efficiently managing the center’s invested capital
Investment center
A system that provides top management with a framework for maintaining control over the entire organization
Performance evaluation systems
A system that provides top management with a framework for maintaining control over the entire organization
Performance evaluation systems
A nonfinancial performance measure that evaluates effectiveness and efficiency to ensure all segments of the business are working together to achieve the company’s goals.
Operational Performance Measures
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.
Balanced scorecard
What are the four perspectives of a balanced scorecard
Financial
Customer
Internal business
Learning and Growth
Performance report that captures the financial performance of cost, revenue, and profit centers with a focus on responsibility and controllability
Responsibility reports
The typical focus of a cost centers responsibility report
Flexible budget variance
Typical focus of a revenue centers responsibility report
Flexible budget variance and sales volume variance
Typical focus of a profit centers performance report
Revenue and expense variances
Two financial measurements of an investment center
Operating income and efficient use of assets
A measure of profitability and efficiency.
ROI = Operating income/average total assets
Ratio that shows how much operating income is earned on every dollar of net sales revenue
Profit margin ratio = Op income/nest sales reve
Measures how efficiently a business uses its average total assets to generates sales.
Asset turnover ratio = net sales rev/average total assets
A measure of profitability and efficiency computed as actual operating income less a specified minimum acceptable operating income
Residual income = OI - (target rate of return * average total assets)
The transaction amount of one unit of goods when the transaction occurs between divisions within the same company
transfer price
A transfer price based on the current market value of the goods
market-based transfer price
The benefit given up by choosing an alternative course of action
opportunity cost
A transfer price based on the cost of producing the goods
cost-based transfer price
