Performance Evaluation

Question 1

Performance Evaluation
When decisions are made only by the head od org, it is called _____

When authority to make decisions is delegated to responsible officers in different org levels, it is called___

Answer 1

Centralized Organization
Decentralized

Question 2

Performance Evaluation
Provide the list of:

Responsibility Center Manager? And Explain Each.

Evaluation Techniques?

Answer 2

RCM:
1. Cost Center Manager
-has control over the incurrence or non-incurrence of costs
-should separate controllable from non-contrallable
-should highlight the variances between actual and budgeted costs
-usually gagawa lang ng performance report dito, nakalatag yung actual vs budgeted

2. Revenue Center Manager
   -has control in generating revenue only NOT COSTS
   -actual vs. budgeted revenue
3. Profit Center Manager
   -has control over REVENUES AND COSTS
   -his performance is evaluated based on Controllable Margin while the center’s performance is based on segment (or direct) margin
4. Investment Center Manager
   -Return on Equity
   -ROI / DuPont Model
   -Residual Income
   -EVA
   -Others

ET:
Cost Variance Analysis
Revenue Variance Analysis
Segment Margin Analysis
Return on Investment (ROI)
Residual Income Model
Economic Value Added (EVA)
Others

Question 3

Performance Evaluation
In Profit Center Manager’s Performance, how to compute Contorllable margin and Segment (direct) margin?

Answer 3

Contribution Margin
Less: Controllable Direct Fixed Costs and Expenses
=Controllable Margin
Less:NonConttollable Direct Fixed Costs and Expenses
=Segment Margin

Question 4

Performance Evaluation
DuPont Model is also known as?

Answer 4

Return on Investment

Question 5

Performance Evaluation
Provide formulas for the following
Investment Center Manager

-ROI / DuPont Model
-Residual Income
-Economic Value Added (EVA)

Answer 5

Segment Income (BEFORE TAX!)
Less: Mininum Income (Investment ×implied or desired rate)
=Residual Income

EVA
-more specific after tax version of residual Income

Question 6

Transfer Pricing
Explain

Answer 6

The issue of transfer pricing occurs when an independent unit sells to or buys from another independent unit WITHIN THE SAME BUSINESS UNIT CONGLOMERATE

Question 7

Transfer Pricing
When the overall goal of the organization prevails over the divisional goals, it is called___

Answer 7

Goal congruence or Optimization

Question 8

Transfer Pricing
When the individual goal of investment managers prevail over the overall organization’s goal, it is called _____

Answer 8

Suboptimization

Question 9

Transfer Pricing
Explain the General Rule for Maximum and Minimum Transfer Price

Answer 9

Maximum TP: Selling/Market Price - amount kung magkano mabibili yung product sa labas

Minimum TP:
=incremental cost + opportunity cost

But depends if:
W/ excess Capacity: VC (no opportunity cost)

Wout excess Capcity: VC + CM (which is the selling price)

Question 10

The basic purpose of responsibility acctg is__

Answer 10

Motivation

Question 11

Performance Eval
What is superior? ROI or Residual Income? Why?

Answer 11

Residual Income. Cause RI is peso amount which more consistent with maximizing profit while ROI is certain percentage.