Acct 2102 Chapter 10 – Flashcards
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To divide operations into segments and delegate decision making responsibilities to the segment managers.
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Decentralize
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What lines are companies decentralized along
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Product lines, geographic regions, and responsibility centers
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An advantage of decentralization to _____ is that it doesn't have to make daily operational decisions and can focus on strategic planning and decision making
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Top management
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An advantage of decentralization among Segment managers that are able to bring _____ _____ of operations to the table.
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Specialized Knowledge
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An advantage of decentralization among segment managers is that they can ___ ____ to customer demands. This leads improved customer relations.
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Quickly Respond
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An advantage of decentralization among segment managers the _____ and _____ necessary to move into top management posititions
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Experience and Training
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An advantage of decentralization among segment managers improves _____ and the ______ of segment managers
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Motivation and retention
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Potential disadvantages of decentralization include operational decisions are made at multiple levels within the company, the potential for the ____ __ ____ and ____ ___ to exist
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Duplication of costs and efforts
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Potential disadvantages of decentralization include ____ ____ may not be acheived
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Goal Congruence
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These are segments of a company for which the manager is held responsible for certain activities.
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Responsibility Centers
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What are the four types of responsibility centers
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cost center, profit center, revenue center, investment center
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held responsible for CONTROLLING COSTS. PERFORMANCE REPORTS are used to evaluate
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Cost Centers
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held responsible for GENERATING REVENUE. PERFORMANCE REPORTS are used to evaluate
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Revenue Centers
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is held responsible for GENERATING REVENUE, CONTROLLING COSTS, and EFFICIENTLY MANANGE SEGMENT ASSETS. PERFORMANCE REPORTS., RETURN ON INVESTIMENT, AND RESIDUAL INCOME are used to evaluate.
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Investment Center-
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This report compares the actual operating results to the budget operating results
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Performance Reports
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Difference between the actual and budget
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Variance
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This indicates that actual REVENUE was HIGHER than expected or actual EXPENSES LOWER than expected.
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Favorable Variance
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This indicates that actual REVENUE was LOWER than expected or actual EXPENSES were HIGHER than expected.
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Unfavorable Variance
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provide an explanations for all material variance.
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Management by exception
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This variance falls outside of an acceptable range of outcomes and its opposite does not require an explanation
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Material Variance
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This is the contribution margin attributable to the segment less all traceable fixed costs
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Segment Margin
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These costs will not be incurred if a segment no longer exists
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Traceable fixed costs
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These are not included in the segment margin calculation because they will continue even if a segment no longer exists
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Common fixed costs
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Managers of this center are responsible for efficiently managing the segments assets. Assess the operating income generated by a segment in relationship to the assets invested in the segment
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investment centers
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measures the amount of income an investment center earns relative to the amount of assets invested in the investment center.
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Return on investment
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operating income/total assets
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ROI formula
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This tells how much is income generated for every dollar invested in the segment
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Return on investment
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Tells management how much income is generated from every sales dollar generated
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Sales Margin
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operating income/sales
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Sales Margin formula
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This tells management how much sales revenue is generated from every dollar invested in the segment
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Capital turnover
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sales revenue/total assets
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Capital turnover formula
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determines whether the division has created any income above management's expectations
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Residual Income
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minimum acceptable rate of return that the company expects its segments to ear.
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Target Rate of Return
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Operating income-(target rate of return*total assets)
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Residual Income formula
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The company attains this when the segments ROI is greater than the company's target rate of return
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Positive Residual Income
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This type of income happens when the segments ROI is less than the company s target rate of return
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Negative Residual Income
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Goal congruence is maximized by this because the company's target rate of return is clearly communicated to the segment manager and used in the performance evaluation process
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Residual income
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are used for planning and performance evaluation and is prepared for a single level of activity
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Static/Master Budgets
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By using these managers gain better insight when planning for the future and evaluating past performance
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flexible budgets
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These budgets are used to compare actual operating results to a budget created using the actual level of activity for the period
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Flexible budgets
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is the difference between the flexible budget and the actual results Can provide meaningful insight into operating successes and failures
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Flexible budget variance
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This is the difference between the flexible budget and the master budget and only exists because the company sold more or less units than they originally anticipated
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Volume Variance
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Should only unfavorable variances be investigated? _____, favorable variances should be investigated to make sure they are not hurting the business in the long run.
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NO
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Sales margin x capital turnover
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Expanded ROI formula
