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Managerial Accounting > segment reporting > Flashcards

segment reporting Flashcards

1
Q

What are the key learning objectives of ROI analysis?

A

Understand and measure ROI, residual income, and evaluate segment performance.

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2
Q

What is the formula for ROI?

A

ROI = Operating Income / Average Operating Assets.

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3
Q

What is another way to express ROI?

A

ROI = Margin x Turnover.

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4
Q

What is the formula for margin?

A

Margin = Operating Income / Sales.

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5
Q

What is the formula for turnover?

A

Turnover = Sales / Average Operating Assets.

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6
Q

What is residual income (RI)?

A

The income left after subtracting the required return on average operating assets from operating income.

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7
Q

What is the formula for residual income?

A

RI = Operating Income – (Average Operating Assets x Required Rate of Return).

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8
Q

Why is residual income used?

A

To evaluate profitability in absolute terms and to align decisions with company goals.

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9
Q

What is the disadvantage of ROI?

A

May lead to rejecting profitable projects if they lower the overall ROI.

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10
Q

How can ROI be improved?

A

Increase margin or turnover by raising revenues, reducing costs, or optimizing assets.

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11
Q

What are the types of operating assets?

A

Cash, receivables, inventory, PPE, and intangibles.

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12
Q

What is decentralization in organizations?

A

Delegating decision-making authority to lower-level managers.

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13
Q

What are the advantages of decentralization?

A

Faster decision-making, managerial development, and local responsiveness.

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14
Q

What are the disadvantages of decentralization?

A

Risk of goal misalignment, duplication of efforts, and lack of uniformity.

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15
Q

What is the purpose of a balanced scorecard?

A

To evaluate performance using financial and non-financial metrics.

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16
Q

What are the categories of a balanced scorecard?

A
  1. Financial, 2. Customer, 3. Internal Process, 4. Learning and Growth.
17
Q

What are common financial metrics in the balanced scorecard?

A

Net income, ROI, residual income, and cash flow.

18
Q

What is the importance of non-financial metrics?

A

To measure customer satisfaction, internal efficiency, and employee development.

19
Q

What is a responsibility center?

A

A part of the organization for which a manager is responsible for costs, revenues, or investments.

20
Q

What are the types of responsibility centers?

A
  1. Cost center, 2. Revenue center, 3. Profit center, 4. Investment center.
21
Q

What is the role of performance evaluation metrics?

A

To assess efficiency, profitability, and goal alignment across segments.

22
Q

CMR formula

A

CM/sales

23
Q

additional Contribution from sales increase

A

sales increase x CMR

24
Q

segment margin formula. segment reporting

A

CM-traceable fixed expenses

25
Q

operating income in segment reporting

A

total segment margins - common fixed expenses

26
Q

segment margin ratio (CMR FOR THE SEGMENT)

A

segment margin / sales

27
Q

using the gross cost method

A

this method eliminates both the age of equipment and the method of depreciation as factors in ROI calculations

28
Q

what do shareholders care about in terms of segment reporting

A

absolute profitability

29
Q

if the queston asks whether a new investment generates more profit, regardless of its impact on ROI

A

you have to calculate the additional operating income

30
Q

cost centre definition

A

controls costs only

31
Q

profit centers definition

A

control both costs and revenues

32
Q

investment centers definition

A

control costs, revenues and investments

33
Q

how are cost centers evaluated

A

on cost efficiency

34
Q

how are profit centers evaluated

A

evaluated on profitability

35
Q

how are investment centers evaluated

A

evaluated using metrics like ROI and residual income

Managerial Accounting (9 decks)

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