BUS 254 chapte 12 notes

BUS 254 chapte 12 notes - o Bad easily manipulated • RI o...

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Chapter 12: Responsibility Accounting, Investment Centers, and TP Management by Objectives = setting goals, then working towards them Responsibility Accounting = measuring performance of people and departments Responsibility Centres: Cost Centres Revenue Centres Profit Centres Investment Centres Performance Report: Has budget and actual amounts variances Segmented Reporting Separating segment cost and common costs o Common costs = cost required by entire company Have to take these out of segments Better performance evaluation using segment reports Measurements Return on Investment (ROI) o ROI = Income / Invested Capital ROI = Income / Sales x Sales / Invested Capital ROI = margin x turnover Improving ROI by either increasing sales, decreasing expense, or decreasing capital Residual Income (RI) o RI = Investment centre’s profit – (investment centre’s capital x minimum required rate of return) Goods and bads of ROI and RI ROI o Good comparable between different managers and company
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Unformatted text preview: o Bad easily manipulated • RI o Good focus on achieving goals (less easy to manipulate) o Bad firm size matters Transfer Pricing • Transfer items between divisions within the company Selling Division (producer): TP = additional outlay cost per unit + opportunity cost per unit o TP >/= VC / unit + (CM lost from outsider / units sold to outsider) General transfer-pricing rule Excess capacity no opportunity cost No-excess capacity opportunity cost Some excess capacity some opportunity cost Buying division (buyer): TP </= price they can get from outsiders Market transfer price rule Negotiated transfer price o Combining both TP of selling and buying division Cost-based transfer price o Variable cost what we did above o Full Cost VC + allocated fixed overhead cost VC + budgeted fixed overhead / budgeted production • This is set to be TP...
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