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ACTG 2120

ACTG 2120. Chapter 24–Performance Measurement and Responsibility Accounting. Segments of Parts of a Company. Break down company into manageable parts by Function Territory Line of business Client Motivation Evaluation. What is a Responsibility Center?.

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ACTG 2120

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  1. ACTG 2120 Chapter 24–Performance Measurement and Responsibility Accounting

  2. Segments of Parts of a Company • Break down company into manageable parts by • Function • Territory • Line of business • Client • Motivation • Evaluation

  3. What is a Responsibility Center? It is any part, segment, or subunit of a business that needs control. It is headed by a manager who is “responsible” for its activities. – production – service

  4. Responsibility Centers • Responsibility • Often tied to “control” of the organizational unit • Organizational unit manager often has the authority to make decisions on behalf of the organizational unit • Unit often held accountable for decisions made by the organizational unit manager

  5. Controllability • It is the degree of influence that a specific manager has over costs, revenues, or other items in question. • Responsibility accounting focuses on information and knowledge, not control. • A responsibility accounting system could exclude all uncontrollable costs from a manager’s performance report. • In practice, controllability is difficult to pinpoint.

  6. Responsibility Centers • Cost/expense centers • Responsible for incurring costs/expenses; not accountable for generating revenues • Often measured by comparing actual costs to standard costs • Profit centers • Responsible for both revenues and costs • Measures include profitability measures • Investment centers • Responsible for revenues, costs, and assets used to generate profits. • Measured by return on investment and other measures

  7. Departmental Expense Allocation • Direct costs – can be specifically traced to goods and services • Ex.: Direct materials, Direct labor, salaries in a particular department, advertising for a particular program, commissions paid on sales of a good or service • Indirect costs • Are part of the cost of the good or service but cannot be physically traced to the goods or services • Are allocated to goods, services, and segments

  8. Departmental Income Statements • Departmental contribution to overhead • Report can include controllable and uncontrollable costs • Only controllable costs are included on each department’s report • Exhibit 24.16, page 1004

  9. Investment Center Performance • Return on investment: Departmental income Average departmental assets • Residual income: Departmental income – (target return x avrg. dept. assets)

  10. Nonfinancial Performance Measures • Any measure not based on the financial statements that is critical to your business: • Customer satisfaction • Quality • On-time delivery • Inventory turnover • Number of new products • Employee turnover • Wait time (retail)

  11. Balanced Scorecard

  12. Homework • Problems 24-2B, 24-3B*, BTN 24-3 • DUE WITH EXAM, FRIDAY, MAY 30

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