Responsibility Accounting and Segment Evaluation Flashcards
Centralized organization
Decisions rest only to top management
Decentralization
Authority to make decisions is delegated to responsible officers in different organizational units.
What does “empowerment” mean…
Authority
Power to do or not to do, give ordersm give command, give instructions, or make decisions.
Responsibility
Duty to do or not to do an activity according to the order given.
Accountability
Answerability on the consequence of what had been done, undone, or had not been done.
Investment center
Revenue center
Cost center
Controllability
Power of the manager to decide or influence the incurrence or non incurrence of an item, event or activity.
Profit center
Profit Center Manager’s Performance [segment margin formula]
Contribution Margin
Less: controllable direct FC and expenses
Controllable margin
Less: noncontrollable direct FC and expenses
Segment Margin
Return on Investment
Profit/Investment
Dupont Model [ROI]
ROI = Profit / Net Sales x Net Sales / Investment
ROI = Return on Sales x Asset Turnover
The ROI and its limitations
The size matters
The asset life also matters
The special assignment matters
The Residual Income
Segment income - Minimum income
Economic Value Added
more specific after-tax version of residual income
EBIT (1-T) - Minimum Income
Equity Spread
Shareholder’s equity - beginning x (Return on Equity - cost of equity rzte)
Return on equity
Profit divided by average shareholder’s equity
Total shareholders’ return
Change in the stock price plus dividends per share divided by the initiak stock price
Market Value Added
Difference between the market value of the equity and the equity supplied by the shareholders.
