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18 Cards in this Set
- Front
- Back
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decentralization
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delegating authority and responsibility
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responsibility center
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an organizational unit that controls identifiable revenue or expense items
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cost center
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an organizational unit that incurs expenses but does not generate revenue
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profit center
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an organizational unit that incurs costs but also generates revenue
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investment center
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type of responsibility center for which revenue, expense, and capital investments can be measured
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responsibility report
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performance reports for the various company responsibility centers that highlight controllable items; show variances between budgeted and actual controllable items
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management by exception
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the philosophy of focusing management attention and resources only on those operations where performance deviates significantly from expectations
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controllability concept
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evaluating managerial performance based only on revenue and costs under the manger's direct control
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return on investment (ROI)
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the ratio of wealth generated (operating income) to the amount invested (operating assets) to generate the wealth
ROI= Operating Income/ Operating Assets *higher ROIs indicate better performance |
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margin
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a measure of management's ability to control operating expenses relative to the level of sales
*high margins indicate superior performance *decreasing operating expense increase profitability |
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turnover
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a measure of the amount of operating assets employed to support the achieved level of sales
*excessive expesnes decreases profitability |
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suboptimization
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condition in which the best interests of the organization as a whole are in conflict with managers' own self-interests
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residual income
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performance measure that evaluates managers based on how well they maximize the dollar value of earnings above some targeted level of earnings
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balanced scorecard
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a management evaluation tool that uses both financial and non-financial measures to asses how well an organization is meeting its objectives
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transfer price
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price at which products or services are transferred between divisions or other segments of an organization
*to establish transfer price 1) price based on market forces 2) price based on negotiation 3) price based on cost |
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market-based transfer price
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transfer price based on the external market price less any cost savings; it offers the closest approximation to an arm;s-length price possible for intersegment tranactions
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negotiated transfer price
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transfer price established through mutual agreement of the selling and buying segments
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cost-based transfer price
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transfer price based on the historical or standard cost incurred by the supplying segment
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