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Related Flashcards
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Cards In This Set
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An organization in which decision-making authority is not confined to a few top managers but rather is spread out through the organization
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Decentralization
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What are the advantages of decentralization?
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1) Top management can concentrate on bigger issues
2) Authority is given to those who are involved in day-to-day operations 3) Respond more quickly to customers and to environmental changes 4) Train lower-level managers for higher-level positions 5) Increase motivation and job satisfaction |
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What links lower level managers' decision-making authority with accountability for the outcomes of those decisions?
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Responsibility accounting
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When the manager has control over costs, but not over revenue or the use of investment funds
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Cost center
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When the manager has control over both costs and revenue, but not over the use of investment funds
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Profit center
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When the manager has control over cost, revenue, and investments in operating assets
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Investment center
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What is the purpose of a segmented income statement?
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Because reports are often needed for individual parts of the organization in which managers would like cost, revenue, or profit data
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How is segment margin different from the contribution margin?
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The difference between segment and contribution margin is that segment margin deducts traceable fixed costs from the contribution margin
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A fixed cost that is incurred because of the existence of the segment
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Traceable fixed costs
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A fixed cost that supports the operations of more than one segment
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Common fixed costs
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Can traceable fixed costs become common if the segment is further divided?
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Yes, because fixed costs that are traceable to one segment may be common to another segment
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Why should common costs not be allocated?
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Because the allocating common costs to a segment may make the it appear to be unprofitable. And allocating common costs to lower-level managers makes them responsible for costs they cannot control
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What is the ROI formula?
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Net operating income / Average operating assets
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What is the residual income formula?
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Net operating income - (Average operating assets * Minimum required rate of return)
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Why is it important to use both ROI and residual income?
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Because ROI decisions may reject investments that are profitable for the whole company and residual income approach cannot be used to compare divisions of different sizes.
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