Su 8 Responsibility Accounting And Performance Measures

Front 1

What is the primary distinction between centralized and decentralized organizations?

Back 1

The degree of freedom of decision making by the managers at many levels.

Front 2

Centralized organization decision making

Back 2

consolidated so that decision making happens at the top

Front 3

Decentralized organization

Back 3

Decision making is at a low a level as possible. The premise is that the local manager can make more informed decisions than a manager farther from the decision.

Front 4

What is another name for a responsibility center

Back 4

Strategic business units

Front 5

What are the 4 responsibility centers?

Back 5

1. cost center
2. revenue center
3. profit center
4. investment center

Front 6

Cost Center

Back 6

Responsible for costs only

Front 7

Definition of a responsibility center

Back 7

Sub units where managers are responsible for specific financial results.

Front 8

Revenue Center

Back 8

Sales Department, Responsible for revenues only

Front 9

Profit Center

Back 9

Department in a retail store, Responsible for both revenues and expenses

Front 10

Investment center

Back 10

Branch office, responsible for revenues expenses, and invested capital.

Front 11

Controllable factors

Back 11

factors that a manager can influence in a given time period.

Front 12

Goal Congruence

Back 12

Performance measures must be designed such that the manager's pursuit of them ties directly to accomplishment of the organizations overall goals.

Front 13

What is the most appropriate performance measurement technique for managers of cost and revenue centers?

Back 13

Variance Analysis

Front 14

How should performance measures be based for Cost and Revenue Centers?

Back 14

Based on a cause and effect relationship.

Front 15

How should performance measures be based for Profit Centers?

Back 15

The Contribution margin approach.

Front 16

What is the purpose of performance measures for investment centers?

Back 16

They reveal how efficiently the manager is deploying capital to produce income for the organization.

Front 17

How should performance measures be based for investment centers?

Back 17

It should relate the centers resources (Balance sheet) to its income (income statement)

Front 18

what is the most widely used performance measurement for an investment center

Back 18

Return on investment

Front 19

Residual income

Back 19

Business unit profit -Average total assets x Target rate of Return)

Front 20

Why is Residual income often considered preferable to ROI?

Back 20

It deals in absolute dollars rather than percentages.

Front 21

A company that uses LIFO will often show ________ inventory and __________ costs than a company that uses the FIFO methodology.

Back 21

lower inventories , higher costs.

Front 22

A company that uses FIFO will often show ________ inventory and __________ costs than a company that uses the LIFO methodology.

Back 22

Higher Inventories, Lower costs

Front 23

A division that shares its assets with another division may find that it has a _________ rate of return than the division that has access to the use of the assets.

Back 23

Lower

Front 24

What is the advantage in using straight line depreciation on plant assets?

Back 24

lower expenses.

Front 25

What is the advantage in using accelerated depreciation on plant assets?

Back 25

tax savings

Front 26

Common costs

Back 26

costs of products, activities, facilities, services or operations shared by two or more cost objects.

Front 27

Reasons for Headquarter support costs

Back 27

1. Reminds managers that they exist.
2. remind managers that profit center earnings must cover some amount of support costs.
3. Departments or divisions should be motivated to use central support services appropriately
4. Managers who must bear the costs of central support services that they do not control exert pressure on those who do.

Front 28

Transfer prices

Back 28

Amounts charged by one segment of an organization for the goods and services it provides to another segment of the same organization.

Front 29

What is the principle challenge in transfer pricing

Back 29

determining a price that motivates both the selling and buying manager to pursue organizational goal congruence.

Front 30

what are the four basic methods of transfer price setting?

Back 30

Variable cost, full cost, market price, negotiated price.

Front 31

When should the Variable cost transfer price scheme be used?

Back 31

only when the selling division has excess capacity. However there is little motivation because they will be producing at a loss (not covering fixed costs)(

Front 32

What does parker do for transfer pricing?

Back 32

Cost + 15% aka Variable costing

Front 33

What is the advantage in using variable costs?

Back 33

The BUYER is motivated to solve the COMPANYs excess capacity problem, even though that excess capacity is not at the buyers division.

Front 34

Full Cost

Back 34

cost includes materials, labor, and full allocation of manufacturing overhead.

Selling division will not incur a loss . Buyer gets it at less than market price.

Front 35

Negotiation

Back 35

when organizational subunits are free to determine the prices at which they buy and sell internally. A transfer price may simply reflect the best bargain that the parties can strike.

Front 36

Dual Pricing

Back 36

The selling and buying units record the transfer at different prices. In Effect, the seller is given a corporate subsidy.

Front 37

Critical Success Factors

Back 37

specific, measurable financial and non financial elements of a firms performance that are vital to its competitive advantage

Front 38

Balanced Scorecard

Back 38

Goal congruence tool that informs managers about the nonfinancial factors that top management believes to be important.

Front 39

Measures on the balanced scorecard

Back 39

Financial/NonFinancial, Internal/External, short/long term.

Front 40

SWOT Analysis

Back 40

address internal strenghts and weaknesses,
Opportunities and threats.

Front 41

What are the problems in implementing a balanced scorecard?

Back 41

Using too many measures
Failing to evaluate personnel on both financial and non financial measures
Including measures that will not have long term financial benefits
Not understanding subjective measures are imprecise
Trying to achieve improvements in all areas at all times
NOt being aware that the hypothesized connection between nonfinancial measures and ultimate financial success may not continue to be true.