Presentation on theme: "24 Performance Evaluation for Decentralized Operations Accounting 26e"— Presentation transcript: 1 24 Performance Evaluation for Decentralized Operations Accounting 26e Show
2 Centralized and Decentralized Operations 3 Advantages and Disadvantages of Decentralized Operations 4 Responsibility Accounting
5 Responsibility Accounting for Cost Centers 6 Responsibility Accounting for Profit Centers (slide 1 of 2)
7 Responsibility Accounting for Profit Centers (slide 2 of 2) 8 Service Department Charges (slide 1 of 2) 9 Service Department Charges (slide 2 of 2) 10 Profit Center Reporting
11 Responsibility Accounting for Investment Centers (slide 1 of 2)
12 Responsibility Accounting for Investment Centers (slide 2 of 2)
13 Rate of Return on Investment (slide 1 of 5) 14 Rate of Return on Investment (slide 2 of 5)
15 Rate of Return on Investment (slide 3 of 5)
16 Rate of Return on Investment (slide 4 of 5) 17 Rate of Return on Investment (slide 5 of 5)
18 Residual Income Residual income is useful in overcoming some of the disadvantages of the rate of return on investment.
Residual income is the excess of income from operations over a minimum acceptable income from operations. The minimum acceptable income from operations is computed by multiplying the company minimum rate of return by the invested assets. The major advantage of residual income as a performance measure is that it considers both the minimum acceptable rate of return, invested assets, and the income from operations for each division. ©2016 Cengage
Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19 The Balanced Scorecard 20 Balanced Scorecard Performance Measures
21 Transfer Pricing When divisions transfer products or render services
to each other, a transfer price is used to charge for the products or services. Because transfer prices will affect a division’s financial performance, setting a transfer price is a sensitive matter for the managers of both the selling and buying divisions. The objective of setting a transfer price is to motivate managers to behave in a manner that will increase the overall company income. Transfer prices can be set as low as the variable cost per unit or
as high as the market price. Often, transfer prices are negotiated at some point between the two. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22 Market Price Approach Using the market
price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers. If an outside market exists for the product or service transferred, the current market price may be a proper transfer price. ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
23 Negotiated Price Approach (slide 1 of 2) 24 Negotiated Price Approach (slide 2 of 2)
25 Cost Price Approach (slide 1 of 2) 26 Cost Price Approach (slide 2 of 2) On what is a manager of a profit center evaluated?Performance variances
These variances include market share and operating costs. Because the manager can affect his or her unit's market share and its efficiency, they are the two most important variances a company can use to evaluate the profit center manager.
How is a profit center evaluated?A profit center is evaluated on the amount of profit that is generated and attempts to increase profits by increasing sales or reducing costs. Units that fall under a profit center include the manufacturing and sales department.
When evaluating the performance of a manager of a profit center the best figure to consider is the?If we want to measure the performance of the profit center manager, we should consider only those costs and revenues over which the profit center manager has direct control. Such costs and revenues are called controllable costs and revenue.
What is a profit center and how is its performance evaluated?Profit center is a division, function, product, service, region or any other segment of an organization for which performance is measured separately because it is treated as an independent unit responsible for its own costs, revenues, and the resulting profits or loss.
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