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25 Cards in this Set
- Front
- Back
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responsibility accounting
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each manager's performance should be judged by how well he or she manages those items only under his control
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decentralized organization
ex |
the control of operations is delegated to many managers throughout the organization
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cost center
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manager has control over costs incurred (assembly line)
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profit center
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manager has control over cost and revenue
(subsidiary, store manager) |
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investment center
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manager has control over cost, revenue, and investment funds
(division) |
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segment
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any part or activity about which a manager seeks information
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traceable fixed costs
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these costs arrive because of the existence of the segment - if the segment were discontinued, the cost would disappear
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common fixed costs
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these costs arise because of overall operations and are not due to a particular segment - they would not disappear if the segment were discontinued
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ROI
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net operating income/average operating assets
margin * turnover |
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advantages and disadvantages of ROI
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Advantages; comparability across divisions. easy to understand
disadvantages: not conisistent with cash flow models used for capital expenditures. may not be controllable by the division manager due to committed to fixed costs. managers may reject profitable investment opportunities |
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segment
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any part or activity about which a manager seeks information
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traceable fixed costs
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these costs arrive because of the existence of the segment - if the segment were discontinued, the cost would disappear
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common fixed costs
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these costs arise because of overall operations and are not due to a particular segment - they would not disappear if the segment were discontinued
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ROI
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net operating income/average operating assets
margin * turnover |
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advantages and disadvantages of ROI
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Advantages; comparability across divisions. easy to understand
disadvantages: not conisistent with cash flow models used for capital expenditures. may not be controllable by the division manager due to committed to fixed costs. managers may reject profitable investment opportunities |
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Residual income
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the net operating income minus a minimum required return
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relevant cost
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a cost that differs between alternatives
avoidable |
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irrelevant
two examples that are ALWAYS irrelevant |
unavoidable
Sunk, future costs |
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incremental analysis
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the process of identifying the financial data that change under alternative courses of action
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opportunity cost
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the benefits that are foregone as a result of pursing some course of action
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sunk cost
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a cost already incurred so it cannot be changed
not relevant in incremental analysis! |
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avoidable costs
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costs that will not continue if an ongoing operating is changed or deleted
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unavoidable costs
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costs that continue even if an operation is halted
include common costs |
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decision rule
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only drop a segment if its profit would increase. that will only happen if the fixed cost savings exceed the lost contribution margin
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vertical integration
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the involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales...
usually applies when a company is making a product |
