Exam #3 Flashcards
Responsibility Center=
Cost Center, Profit Center, and Investment Center
A segment whose manager has control over costs, but not over revenues or investment funds.
Cost Center
A segment whose manager has control over both costs and revenues, but no control over investment funds.
Profit Center
A segment whose manager has control over costs, revenues, and investments in operating assets.
Investment Center
Formula: ROI
Net Operating Income/Average Operating Assets
Formula: Margin
Net operating income/Sales
Formula: Turnover
Sales/Average Operating Assets
Another Formula for ROI:
Margin x Turnover
Formula: Residual Income
Net Operating Income - (Average Operating Assets x Minimum Required Rate of Return)
Focusing on the future costs and benefits that differ between the alternatives
Differential Analysis
A future cost that differs between any two alternatives
Differential Cost
Future revenue that differs between any two alternatives
Differential Revenue
An increase in cost between two alternatives
Incremental Cost
A cost that can be eliminated by choosing one alternative over another
Avoidable Cost
A cost that has already been incurred and cannot be changed regardless of what a manager decides to do
Sunk Cost
