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Segment Reporting, and Decentralization

Decentralization in Organizations. Benefits ofDecentralization. Top managementfreed to concentrateon strategy.. Lower-level managersgain experience indecision-making.. Decision-makingauthority leads tojob satisfaction.. Lower-level decisionoften based onbetter information.. Improves ability

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Segment Reporting, and Decentralization

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    1. Segment Reporting, and Decentralization

    2. Decentralization in Organizations

    3. Decentralization in Organizations

    4. Decentralization and Segment Reporting A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. A segment can be . . .

    5. Cost, Profit, and Investments Centres Cost centre A segment whose manager has control over costs, but not over revenues or investment funds.

    6. Cost, Profit, and Investments Centres Profit centre A segment whose manager has control over both costs and revenues, but no control over investment funds.

    7. Cost, Profit, and Investments Centres Investment centre A segment whose manager has control over costs, revenues, and investments in operating assets.

    8. Cost, Profit, and Investments Centres

    9. Traceable and Common Costs

    10. Traceable and Common Costs

    11. Identifying Traceable Fixed Costs Traceable costs would disappear over time if the segment itself disappeared.

    12. Identifying Common Fixed Costs

    13. Levels of Segmented Statements

    14. Levels of Segmented Statements Our approach to segment reporting uses the contribution format.

    15. Levels of Segmented Statements Our approach to segment reporting uses the contribution format.

    16. Levels of Segmented Statements

    17. Levels of Segmented Statements

    18. Levels of Segmented Statements

    19. Levels of Segmented Statements

    20. Traceable Costs Can Become Common Costs Fixed costs that are traceable on one segmented statement can become common if the company is divided into smaller segments.

    21. Traceable Costs Can Become Common Costs

    22. Traceable Costs Can Become Common Costs

    23. Traceable Costs Can Become Common Costs

    24. Traceable Costs Can Become Common Costs

    25. Traceable Costs Can Become Common Costs

    26. Segment Margin The segment margin is the best gauge of the long-run profitability of a segment.

    27. Hindrances to Proper Cost Assignment

    28. Omission of Costs Costs assigned to a segment should include all costs attributable to that segment from the company’s entire value chain.

    29. Inappropriate Methods of Allocating Costs Among Segments

    30. Return on Investment (ROI) Formula

    31. Return on Investment (ROI) Formula Regal Company reports the following: Net operating income £ 30,000 Average operating assets £ 200,000 Sales £ 500,000

    32. Controlling the Rate of Return Three ways to improve ROI . . .

    33. Controlling the Rate of Return Regal’s manager was able to increase sales to £600,000 which increased net operating income to £42,000. There was no change in the average operating assets of the segment.

    34. Return on Investment (ROI) Formula

    35. ROI and the Balanced Scorecard The balanced scorecard provides managers with a roadmap that indicates how the company intends to increase its ROI.

    36. Criticisms of ROI

    37. Criticisms of ROI As division manager at Winston, plc., your compensation package includes a salary plus bonus based on your division’s ROI - the higher your ROI, the bigger your bonus. The company requires an ROI of 15% on all new investments - your division has been producing an ROI of 30%. You have an opportunity to invest in a new project that will produce an ROI of 25%.

    38. Criticisms of ROI

    39. Criticisms of ROI

    40. Residual Income - Another Measure of Performance

    41. Residual Income A division of Zepher has average operating assets of £100,000 and is required to earn a return of 20% on these assets. In the current period the division earns £30,000.

    42. Residual Income

    43. Motivation and Residual Income

    44. End of Chapter 15

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