Exam 4 Ch. 11 & 12
Exam 4 Ch. 11 & 12 ACCT 2210
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This 11 page Bundle was uploaded by Anna Claire Loftis on Sunday April 10, 2016. The Bundle belongs to ACCT 2210 at Auburn University taught by Talitha S. Smith in Spring 2016. Since its upload, it has received 24 views. For similar materials see Principles of Managerial Accounting in Accounting at Auburn University.
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Date Created: 04/10/16
Chapter 11: ▯ ▯ Decentralized organization: decision-making authority is spread throughout the organization rather than being conﬁnes to a few top executives.▯ ▯ - strongly centralized: power is delegated reluctantly to low-level managers▯ as possible)▯ntralized: power is freely given to the lower-level managers (as many decisions ▯ - Advantages: Top management can concentrate on bigger decisions, lower-level managers usually can make better informed decisions(detailed/up-to date info!!), decisions made quicker by eliminating layer of decisions, helps train lower level managers for higher level positions, INCREASES MOTIVATION IN THE COMPANY!!▯ - Disadvantages: Lower-level managers may make poor decisions without fully understanding the company’s overall strategy, coordination btw branches may be lacking, objectives may clash (self-interested behavior gets in the way), spreading innovative ideas is hard.▯ ▯ Responsibility Accounting Systems: Link lower level managers decision-making authority with accountability for the outcomes of those decisions (LINK DECISION & RESPONSIBILITY FOR OUTCOME)▯ ▯ - Responsibility Center: is used for organizations with managers WHO have control and - Three primary types: ▯t, proﬁt, or investments. ▯ - Cost center: control over costs▯ - EX. accounting, ﬁnance, general admin, legal, personnel, & manufacturing facilities▯ - minimize cost while providing service▯ - evaluated: standard cost variance/ﬂexible budget variance (actual vs should have been)▯ - Proﬁt center: control over costs and revenue▯ - evaluated: comparing actual proﬁt to targeted or budgeted proﬁt▯ - Investment center: control over costs, revenue, and investments▯ - held responsible for paying off investments▯ - evaluated: return on investments or residual income measures▯ ▯ Net Operating Income: income before interest and taxes and is sometimes referred to as EBIT▯ Operating Assets: cash, accounts receivable, inventory, plant and equipment, assets held for operating purposes (doesn’t include land held for future use, and investment in another ▯ompany, or a building rented to someone else)▯ Most company’s use Net Book Value instead of Net Operating Income, but the drawback is that ROI is mechanically increasing due to the asset’s net book value increasing and depreciation increasing. This may halt manager’s to replace old, worn-out equipment with new equipment because it will result in a much lower ROI.▯ ▯ ROI is the main measure a company uses to evaluate the company itself! (INCOME/ASSETS)▯ ▯ THE HIGHER A BUSINESS SEGMENT’S RETURN- THE GREATER THE PROFIT EARNED PER DOLLAR INVESTED IN THE SEG’S OPERATING ASSETS.▯ ▯ ▯ Criticism of ROI: ▯ 2. evaluating the performance of a manager who has inherited many committed costs is tricky and can be difﬁcult to fairly assess the performance of the manager▯ 3. due to self-interested behavior- managers responsible for ROI may reject investment opportunities▯ Residual Income: net operating income that an investment confer earns above the minimum!!▯ ▯ Excessive operating assets can be just as much of a drag on ROI as excessive operating ▯xpenses, which depress margin.▯ Margin is ordinarily improved by increasing selling prices, reducing operating expenses, increasing unit sales. ▯ ▯ whole, verses a project based on ROI which may decrease due to a new project!▯pany as a ▯ You can’t use residual income as a comparison of different sized divisions. A bigger company will naturally make more income and vise versa.▯ Operation Performance Measures OTHER THAN FINANCIAL…▯ ▯ 1. delivery cycle time: order to shipping▯ 3. manufacturing cycle efﬁciency ▯to completed objects▯ ▯ Balanced Scorecard: performance measures derived and that which support the company’s strategy Balanced Scorecards reach all the way through the organization. It’s a theory about objectives.▯actions taken by various people in the organization will further the organization’s ▯ ▯ Vision and Strategy of a Company Via Scorecard (Exhibit 11-3)▯ Step 1: Learn & grow▯ Step 2: Internal Business process- deliver value to customer??▯ Step 3: Customer- win and retain them!! recognize the value of company▯ Step 4: Financial Goals- how has the ﬁnancial performance improved?▯ ▯ Residual Income = Net. Op. Income - (Average Op. Assets x Marginal Rate of Return)▯ ▯ ▯OI = Net Op. Income / Average Op. Assets▯ ▯ ▯ ▯ ▯
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