cornerstones chp 10 - Chapter 10 Performance Evaluation,...

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May 26, 2011 Accounting 2102 1 Chapter 10 Performance Evaluation, Variable Costing, and Decentralization
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we’re going to break the chapter down into 4 subsections . . . 1. decentralized operations 2. profit center evaluation 3. variable and absorption costing 4. investment center evaluation May 26, 2011 Accounting 2102 2
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Who has decision making authority? . . . depends on the structure of the company Centralized Operations Decentralized Operations Why would a company choose to decentralize? 1. local information 1. free up top management 1. training and motivating 1. autonomous business units May 26, 2011 Accounting 2102 3 1. decentralized operations
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What would necessitate decentralized operations? (the lines long which divisions are created) DIVERSITY DIVERSITY Geographic Product Responsibility responsibility centers . . . division whose manager is held accountable for specified sets of activities four types: cost, revenue, profit, and investment May 26, 2011 Accounting 2102 4 1. decentralized operations
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Responsibility Centers Center Responsible For Example Performance Measure(s)* Cost Revenue Profit •Segmented Income Statements Investment Return on Investment •Residual Income May 26, 2011 Accounting 2102 5 Information is the key to appropriately holding managers responsible for outcomes. 1. decentralized operations
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Profit Center Evaluation Segmented Income Statements May 26, 2011 Accounting 2102 6 characteristics of segmented income statements contribution income format traceable fixed costs should be separated from common fixed costs to enable the calculation of a segment margin Common costs should not be arbitrarily allocated to segments based on the rationale that “someone has to cover the common costs.” Why? may make a profitable business segment appear to be unprofitable forces managers to be held accountable for costs they cannot control 2. profit center evaluation
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Sporting Heaven profit center evaluation Sporting Heaven is a baseball bat manufacturer located in Athens, Georgia. Two products are produced in its manufacturing facility: Wooden and Metal. The following information relates to its first year of operations : 7 Wooden Metal Units Produced 25,000 10,000 Units Sold 20,000 10,000 Units in Beginning Inventory 0 0 Unit Sales Price $30 $45 Unit Variable Manufacturing Costs $10
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cornerstones chp 10 - Chapter 10 Performance Evaluation,...

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