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Level 5 Management Accounting > Lecture 10 > Flashcards

Lecture 10 Flashcards

1
Q

How is an functional organisation divided in an organisational structure

A

In a functional structure, the organisation is divided based on specific functions or departments

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2
Q

What are the key characteristics of a functional organisation structure

A

Key Characteristics:
- Departments operate independently, but they report to a central executive
- Roles are specialised
- Communication flows vertically within departments
- Suitable for smaller organisations

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3
Q

What are the advantages of a functional organisation structure

A

Advantages:
- Specialisation and expertise in each function
- Clear hierarchy and structure
- Better resource allocation to specific functions

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4
Q

What are the disadvantages of a functional organisation structure

A

Disadvantages:
- Silos can form between departments, reducing cross-functional collaboration.
- Decisions may take time due to the reliance on vertical communication.

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5
Q

How are organisations divided in divisionalised organisational strucutre

A

In a divisionalised structure, the organisation is divided into semi-autonomous units or divisions

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6
Q

In a divisionalised structure what can divisions be based on

A

Divisions can be based on geography, product line, market segment, or customer base

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7
Q

What are the key characteristics of divisionalised organisational structure

A

Key Characteristics:
- Each division operates independently with its own functional teams
- Leaders of divisions report to the top management
- Cross-functional teams may exist across divisions to collaborate on projects or initiatives

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8
Q

What are the advantages of divisionalised organisational structure

A

Advantages:
- Enhanced focus on specific markets or products
- Faster decision-making
- Clear accountability and ownership within divisions

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9
Q

What are the disadvantages of divisionalised organisational structure

A

Disadvantages:
- Duplication of resources across divisions
- Less coordination between divisions
- High administrative overhead at the divisional level.

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10
Q

What does managerial performance focus on

A

Managerial performance focuses on how effectively managers fulfil their roles

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11
Q

What does managerial performance assess

A

It assesses how well management meets strategic and operational objectives

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12
Q

What are the responsibilities of management

A

Planning, organizing, leading, and controlling

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13
Q

What are the metrics for management

A

Employee satisfaction, team efficiency, leadership quality, resource allocation, risk management, and adherence to policies

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14
Q

How are managers evaluated

A

Often assessed through performance appraisals, reviews, and feedback systems

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15
Q

What do economic performances focus on

A

Economic performance focuses on how effectively an organisation utilizes resources to generate profit and financial sustainability

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16
Q

What does economic performance measure

A

It measures the financial health, profitability, and economic outcomes of an organisation’s activities

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17
Q

What are the responsibilities of economic performance

A

Cost management, revenue growth, profitability, return on investment (ROI), shareholder value, and market competitiveness

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18
Q

What are the metrics for economic performance

A

Profit margins, revenue growth, cost efficiency, return on assets (ROA), financial ratios, and market share

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19
Q

How is economic performance evaluated

A

Often assessed through financial statements, audits, market performance, and shareholder expectations

20
Q

What are some factors that need to be considered to create an effective performance measurement system

A

Several factors need to be considered to create an effective performance measurement system:
- Strategic Alignment
- Relevance
- Balanced Approach
- Measurability

21
Q

What is strategic alignment

A

Ensure that performance measures are aligned with the organization’s strategic goals and objectives

22
Q

What does strategic alignment ensure

A

This ensures that individual and team performance contributes directly to the broader business strategy

23
Q

Why is relevance important for designing performance measurement

A

Irrelevant or too many metrics can dilute focus and create confusion

24
Q

Why is balance approach important for designing performance measurement

A

Focusing solely on financial outcomes may overlook critical aspects like customer satisfaction, innovation, and employee engagement

25
Q

Why is measurability important for designing performance measurement

A

Clear, objective measurements are easier to track, assess, and improve

26
Q

Return on Investment (ROI)

A

ROI= Net profit/investment X 100

27
Q

What does ROI measure

A

ROI measures the profitability of an investment relative to its cost. It indicates how efficiently an investment generates profits

28
Q

What is net profit

A

Net Profit is the profit after deducting all expenses from total revenue

29
Q

What is investment

A

Investment is the amount of capital invested in a particular project or asset

30
Q

What does a higher ROI indicate

A

A higher ROI indicates that the investment is generating more profit relative to its cost

31
Q

What does ROI help compare

A

ROI helps compare the profitability of different investments

32
Q

Residual income (RI) =

A

RI=NetOperatingIncome − (Required Return × InvestedCapital)

33
Q

What does residual income measure

A

Residual Income measures the excess profit earned beyond the required return on investment

34
Q

What does residual income show

A

It shows how well an investment is performing beyond a certain benchmark or minimum expected return

35
Q

What is net operating income

A

Net Operating Income is the profit earned from ongoing operations

36
Q

What is required return

A

Required Return is the minimum acceptable rate of return for a given investment

37
Q

What is invested capital

A

Invested Capital is the amount of capital tied up in the business or project

38
Q

What does a positive residual income indicate

A

A positive residual income indicates that the investment has exceeded the minimum required return

39
Q

What does residual income help evaluate

A

Helps evaluate the true value created by the investment after accounting for opportunity costs

40
Q

Economic Value Added (EVA) =

A

EVA = NetOperatingProfitAfterTaxes(NOPAT) − (Weighted Average Cost of Capital ×
InvestedCapital)

41
Q

What does EVA measure

A

EVA measures the financial performance of a business by assessing how much value is created beyond the cost of capital

42
Q

What does EVA reflect

A

It reflects the real economic profit of a company

43
Q

What is net operating profit after tax

A

Net Operating Profit After Taxes (NOPAT) is the profit generated from operations after taxes

44
Q

What is weighted average cost of capital

A

Weighted Average Cost of Capital (WACC) is the average rate a company must pay to finance its operations

45
Q

What is invested capital

A

Invested Capital refers to the total capital invested in the business

46
Q

What does a positive EVA indicate

A

A positive EVA indicates that the company has created value, exceeding its cost of capital

47
Q

What does a negative EVA mean

A

A negative EVA means that the business has not generated enough profit to cover the cost of capital, indicating a value loss

Level 5 Management Accounting (13 decks)

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