tailieunhanh - Lecture Managerial accounting (15/e): Chapter 11 - Garrison, Noreen, Brewer

Chapter 11 - Performance measurement in decentralized organizations. Managers in large organizations have to delegate some decisions to those who are at lower levels in the organization. This chapter explains how responsibility accounting systems, return on investment (ROI), residual income, operating performance measures, and the balanced scorecard are used to help control decentralized organizations. | Performance Measurement in Decentralized Organizations Chapter 11 Decentralization in Organizations Benefits of Decentralization Top management freed to concentrate on strategy. Lower-level decisions often based on better information. Lower level managers can respond quickly to customers. Lower-level managers gain experience in decision-making. Decision-making authority leads to job satisfaction. Decentralization in Organizations Disadvantages of Decentralization Lower-level managers may make decisions without seeing the “big picture.” May be a lack of coordination among autonomous managers. Lower-level manager’s objectives may not be those of the organization. May be difficult to spread innovative ideas in the organization. Responsibility Accounting Responsibility Center Cost Center Profit Center Investment Center Cost, profit, and investment centers are all known as responsibility centers. Cost Center A segment whose manager has control over costs, but not over revenues or . | Performance Measurement in Decentralized Organizations Chapter 11 Decentralization in Organizations Benefits of Decentralization Top management freed to concentrate on strategy. Lower-level decisions often based on better information. Lower level managers can respond quickly to customers. Lower-level managers gain experience in decision-making. Decision-making authority leads to job satisfaction. Decentralization in Organizations Disadvantages of Decentralization Lower-level managers may make decisions without seeing the “big picture.” May be a lack of coordination among autonomous managers. Lower-level manager’s objectives may not be those of the organization. May be difficult to spread innovative ideas in the organization. Responsibility Accounting Responsibility Center Cost Center Profit Center Investment Center Cost, profit, and investment centers are all known as responsibility centers. Cost Center A segment whose manager has control over costs, but not over revenues or investment funds. Profit Center A segment whose manager has control over both costs and revenues, but no control over investment funds. Revenues Sales Interest Other Costs Mfg. costs Commissions Salaries Other Investment Center A segment whose manager has control over costs, revenues, and investments in operating assets. Learning Objective 1 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Return on Investment (ROI) Formula ROI = Net operating income Average operating assets Cash, accounts receivable, inventory, plant and equipment, and other productive assets. Income before interest and taxes (EBIT) Understanding ROI Margin = Net operating income Sales Turnover = Sales Average operating assets ROI = Margin Turnover Learning Objective 2 Compute residual income and understand its strengths and weaknesses. Calculating Residual Income ( ) This computation differs from ROI. ROI measures net operating income earned relative to the investment in .