Ch 11 PowerPoint Presentation 3rd Edition

Ch 11 PowerPoint Presentation 3rd Edition - Chapter 11...

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Unformatted text preview: Chapter 11 Evaluating Performance ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 1 ­ Centralized Management LO1 Describe centralized and decentralized management styles. • Top management makes most of the decisions. Top • The most experienced managers are making The the important decisions. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 2 LO1 Centralized Management • Top managers spend their time Top making routine decisions. • Top managers may not be familiar with Top the routine aspects of the business. • Little opportunity for lower-level Little employees to gain experience. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 3 LO1 Decentralized Management • Lower-level managers are responsible Lower-level for management decisions that relate to their segment of the business. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 4 LO1 Decentralized Management • Spreads the decision-making responsibilities. Spreads • Provides an opportunity for lower-level managers Provides to sharpen their decision-making skills. • Decisions are made by managers most familiar Decisions with the problems. • Allows top management to focus on strategic Allows decisions. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 5 LO1 Decentralized Management • Decisions may not entirely reflect Decisions the view of top managers. • Decisions are made by less Decisions experienced managers. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 6 Business Segments LO2 Describe the different types of business segments and the problems associated with determining segments costs. • A business segment represents business a part of a company managed by a particular individual... • or a part of a company about which or separate information is needed. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 7 LO2 Segment Information • Managers need information that Managers relates to their business segment. • Reports that provide information Reports pertaining to a particular business segment are called segment reports. segment segment ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 8 The Segment Income Statement LO3 Prepare a segment income statement. • An income statement prepared for An one segment of a business is called a segment income statement. segment Functional format Contribution income format ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 9 LO3 The Segment Income Statement QUINTANA COMPANY MIAMI OFFICE Segment Income Statement For the Year Ended December 31, 2009 Sales Variable cost Contribution margin Fixed cost for Miami office Segment margin $1,200,000 800,000 $ 400,000 300,000 $ 100,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 10 LO3 Identifying Segment Costs • By definition, variable costs are “caused” By by some sort of activity or volume. • If that activity or volume is related to a If particular segment, then so is the variable cost. • Fixed costs are more difficult to trace. Fixed ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 11 LO3 Identifying Segment Costs • Fixed costs that arise to support Fixed a single segment are called direct (or traceable) fixed costs. traceable • Fixed costs that are related to more Fixed than one segment are common than common (or indirect) fixed costs. (or indirect ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 12 Allocating Service Department Cost LO3 Service department Possible allocation basis Personnel Department Number of employees Cafeteria Number of employees Number of meals served Finance Department Capital invested Computer Operations Hours of programming Maintenance Sq. ft. of building occupied Hours of maintenance ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 13 LO3 Activity-Based Allocation • This cost allocation method tends This to be more fair and accurate. • Managers will work to reduce Managers the allocation base. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 14 LO3 Evaluating Business Segments Revenue centers Cost centers Profit centers Investment centers ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 15 Return on Investment LO4 Describe and calculate the return on investment. • Return on investment (ROI) is the percentage Return return generated by an investment in a business or business segment. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 16 LO4 Return on Investment Lisa Company Eastern Division $896,750 income ÷ $10,550,000 investment = ROI 8.50% Western Division $857,500 income ÷ $9,800,000 investment = ROI 8.75% • The company’s required ROI is 8%. The ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 17 LO4 Effect of New Investments • An investment opportunity for the Eastern An Division promises additional income of $123,750 and requires an additional investment of $1,500,000. • What is the ROI? What ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 18 LO4 Effect of New Investments $123,750 new income ÷ $1,500,000 investment = ROI 8.25% ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 19 LO4 Effect of New Investments Eastern Division Without new investment $896,750 Income ÷ $10,550,000 Investment = ROI 8.50% Eastern Division With new investment $1,020,500 Income ÷ $12,050,000 Investment = ROI 8.47% ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 20 Residual Income and (EVA)™ LO5 Describe and calculate residual income and economic value added (EVA)™. • Residual income is a technique that focuses Residual on the amount by which a segment’s actual income exceeds the income needed to meet the company’s required rate of return. • (EVA)™ is similar to residual income adjusted. (EVA)™ ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 21 LO5 Calculating Residual Income • The company’s required ROI is 8%. The Eastern Division Actual income Less: Required income ($10,550,000 × 8%) Residual income $896,750 844,000 $ 52,750 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 22 LO5 Calculating Residual Income • The company’s required ROI is 8%. The Western Division Actual income Less: Required income ($10,550,000 × 8%) Residual income $857,500 784,000 $ 73,500 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 23 LO5 Calculating Residual Income • Residual income with new Residual investment opportunity: Eastern Division Actual income Less: Required income ($10,550,000 × 8%) Residual income $896,750 844,000 $ 52,750 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 24 LO5 Calculating Residual Income Residual income without new investment opportunity: $52,750 Residual income with new investment opportunity: $56,000 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 25 Four Balanced Scorecard Perspectives LO6 Describe various emerging management and management accounting techniques. Financial perspective Customer perspective Strategy Internal processes perspective Innovation perspective ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 26 LO6 Four Balanced Scorecard Perspectives ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 27 Four Balanced Scorecard Perspectives LO6 Internal To excel at having superior business processes to satisfy our shareholders and customers Process quality measures Lead time Defect rates Scrap measures ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 28 LO6 Electronic Commerce • E-commerce refers to the buying and selling E-commerce of products or services and other business activities conducted over the internet. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 29 LO6 Enterprise Information Systems • It is an integrated computer system capable of supporting an entire organization with of quality service while processing large volume of data. volume ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 30 LO6 Six Sigma • It is a business management strategy It that seeks to identify and remove causes of defects and errors. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 31 LO6 Theory of Constraints • A constraint is a anything that does not constraint allow you to do something you wan to do. • TOC has been identified as a four-step process. TOC ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 32 LO6 Theory of Constraints Step 1: Identify the constraint. Step 2: Decide how to address the constraint. Step 3: Work only on the selected constraint until a solution is reached. Step 4: If, as a result of Steps 1-3, the constraint has moved, return to Step 1. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 33 LO6 Lean Manufacturing • It is a production practice that focuses It on reducing waste and inefficiency. ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 34 End of Chapter 11 ©2009 Michael Werner and Kumen Jones, Introduction to Management Accounting, 3e Werner/Jones 11 ­ 35 ­ ...
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This note was uploaded on 01/19/2012 for the course ACC 212 taught by Professor Quintanna during the Spring '08 term at University of Miami.

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