Chapter 10 Flashcards
Advantages to decentralization and resposibilty center
Frees up top management to focus on strategic planning & improves motivation and retention
Disadvantages to decentralization and responsibility centers
Pontential duplication of cost and effort, lower managers might not see the big picture (goal congrence)
Cost center
Responsible for cost only
Revenue center
Responsible primarily for revenue
Profit center
Revenues and cost
Investment center
Responsible for revenue,cost and efficiently managing long term assets
Investment center examples
CEO, operations vp
Cost center examples
Finance CFO, legal counsel, HR, bottling plant manager, warehouse manager, distribution manager
Profit center examples
Snacks division, beverage division, confections division
Segment margin
Sales- VC- traceable fixed cost
Return on investment
Operating income/total assets (average)
Sales margin
Noi/sales
Capital turnover
Sales/total assets
Sales margin also known as
Profitablility
Capital turnover also know as
Prodectivity
Increase roi because
Increased sales, reduced operating income, reduced assets
Residual income
Operating income- (total sales x min rate of return)
Transfer prices
Is the sales revenue for the selling division and the cost for the buying division
Market price
Price that could be obtained in an open market in an arms length transaction the fairest price
Negotiated price
Division managers negotiate usually between variable cost and market price
Cost
VC is the lowest
Flexible budgets
Adjusts the budget for a chance in wctual bumber of units sold from which was planned
Finacial questions
Has our financial performance improved?
Customer questions
Do customers recognize that we are delivering more value?
