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20 Cards in this Set
- Front
- Back
Advantages of Decentralization |
- Top Management can concentrate on companies overall strategy - Lower-level managers are empowered: faster service, higher job satisfaction |
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Disadvantages of Decentralization |
- Lower-level managers may not understand the big picture - Managers may act in ones best interest, not the companies. |
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Responsibility Accounting -Primary Types |
Used for any part of company where the manager had control over and is held accountable for the three primary types... 1. Cost Centers 2.Profit Centers 3. Investment Centers |
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Cost Center
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Manager has control over cost EX: Accounting, Finance, Gen. Admin., Legal, Personnel, Manufacturing Facilities |
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Profit Center |
Manager has control over costs and revenue EX: Snack Division, Beverage Division, and Confections Divison |
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Investment Center |
Manager has control over cost, revenue, and investment in operation assets EX: Corporate Headquarters, Operations VP |
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Traceable Fixed Costs |
A fixed cost that's incurred because of the existence of the segment (If segment was removed, fixed cost wouldn't be incurred) |
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Common Fixed Costs |
Fixed cost that supports the operations of more than one segment, but isn't traceable in whole or in part to any one segment (If segment is dropped there is no change in the true common fixed cost) |
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Segment Margin |
Contribution Margin-Traceable Fixable Cost Good for determining long-term profitability, includes only costs covered by segment |
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NOI in Segmented Income Statement |
Sales -Variable Expenses --------------------------------- Contribution Margin -Traceable Fixed Costs --------------------------------- Segmented Margin -Common Fixed Costs --------------------------------- Net Operating Income |
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Return of Investment (ROI)
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Net Operating Income/Average Operating Assets - Higher ROI, greater profit earned per $ in segments operating assets |
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Operating Assets |
Cash, Accounts Receivable, Inventory, Plant & Equipment, and all other assets held for operating purposes -Avg O.A.= Beg and End Inventory of Op. Assets. |
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Non-operating Assets |
Land held for future use, an investment in another company, or building rented to someone else |
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Net Book Value of Depreciable Assets |
Acquisition Cost - Accumulated Depreciation -Mostly used to calculate Average Operating Assets -NBV dec, Acc. Depr. Inc.--> ROI Inc. |
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ROI Breakdown |
ROI = Margin * Turnover ROI = NOI / Sales * Sales / AOA |
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ROI: Margin |
Net Operating Income / Sales Increase ROI by... 1. Increase Sales 2. Reduce Operating Expenses 3. Reduce Operating Assets |
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ROI: Turnover |
Sales / Average Operating Assets Increase ROI by... 1. Increase Sales 2. Reduce Operating Expenses 3. Reduce Operating Assets |
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Residual Income |
NOI - (Avg. Operating Assets * Minimum Required Rate of Return) Is NOI that an investment center earns above the minimum required return on its operating assets. *Cannot compare performance of divisions of different sizes |
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GAAP and Segment/Contribution Format |
-Contribution Format doesn't comply with GAAP -GAAP required companies to include segmented finical data in their annual reporting (use same method as internal segment reporting) |
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Balance Scorecard: Performance Measures |
1. Financial 2. Customer 3. Internal Business Processes 4. Learning and Growth |