University:
California State University, Northridge
Course:
ACCT 230 | Introduction to Managerial Accounting
Academic year:

2024
Views:

388

Pages:

21
Author:

Rafael Werner

Chapter 10 Segment Reporting, Decentralization, and the Balanced Scorecard Part 1 10-2 Decentralization in Organizations Advantages of Decentralization Lower-level managers gain experience in decision-making. Top management freed to concentrate on strategy. Decision-making authority leads to job satisfaction. Lower-level decisions often based on better information. Lower level managers can respond quickly to customers. 10-3 Decentralization in Organizations Lower-level managers may make decisions without seeing the “big picture.” Lower-level manager’s objectives may not be those of the organization. May be a lack of coordination among autonomous managers. Disadvantages of Decentralization May be difficult to spread innovative ideas in the organization. 10-4 Responsibility Accounting Cost Center Cost, profit, and investment centers are all known as responsibility centers. Profit Center Responsibility Center Investment Center 10-5 Cost Center A segment whose manager has control over costs, but not over revenues or investment funds. 10-6 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 10-7 Investment Center A segment whose manager has control over costs, revenues, and investments in operating assets. Corporate Headquarters 10-8 Responsibility Centers Investment Centers Operations Vice President Salty Snacks Product Manger Bottling Plant Manager Beverages Product Manager Warehouse Manager Superior Foods Corporation Corporate Headquarters President and CEO Finance Chief FInancial Officer Confections Product Manager Distribution Manager Legal General Counsel Personnel Vice President Cost Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization. 10-9 Responsibility Centers Superior Foods Corporation Corporate Headquarters President and CEO Operations Vice President Salty Snacks Product Manger Bottling Plant Manager Beverages Product Manager Warehouse Manager Finance Chief FInancial Officer Confections Product Manager Distribution Manager Legal General Counsel Personnel Vice President Profit Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization. 10-10 Responsibility Centers Superior Foods Corporation Corporate Headquarters President and CEO Operations Vice President Salty Snacks Product Manger Bottling Plant Manager Beverages Product Manager Warehouse Manager Finance Chief FInancial Officer Confections Product Manager Distribution Manager Legal General Counsel Personnel Vice President Cost Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization. 10-11 Learning Objective 1 Prepare a segmented income statement using the contribution format, and explain the difference between traceable fixed costs and common fixed costs. 10-12 Decentralization and Segment Reporting An Individual Store Quick Mart A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. A Sales Territory A Service Center 10-13 Superior Foods: Segmented by Geographic Regions Superior Foods Corporation $500,000,000 East $75,000,000 Oregon $45,000,000 West $300,000,000 Washington $50,000,000 Midwest $55,000,000 California $120,000,000 South $70,000,000 Mountain States $85,000,000 Superior Foods Corporation could segment its business by geographic region. 10-14 Superior Foods: Segmented by Customer Channel Superior Foods Corporation $500,000,000 Convenience Stores $80,000,000 Supermarket Chain A $85,000,000 Supermarket Chains $280,000,000 Supermarket Chain B $65,000,000 Wholesale Distributors $100,000,000 Supermarket Chain C $90,000,000 Drugstores $40,000,000 Supermarket Chain D $40,000,000 Superior Foods Corporation could segment its business by customer channel. 10-15 Keys to Segmented Income Statements There are two keys to building segmented income statements: A contribution format should be used because it separates fixed from variable costs and it enables the calculation of a contribution margin. Traceable fixed costs should be separated from common fixed costs to enable the calculation of a segment margin. 10-16 Identifying Traceable Fixed Costs Traceable costs arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared. No computer division means . . . No computer division manager. 10-17 Identifying Common Fixed Costs Common costs arise because of the overall operation of the company and would not disappear if any particular segment were eliminated. No computer division but . . . We still have a CEO. 10-18 Traceable Costs Can Become Common Costs It is important to realize that the traceable fixed costs of one segment may be a common fixed cost of another segment. For example, the landing fee paid to land an airplane at an airport is traceable to the particular flight, but it is not traceable to first-class, business-class, and economy-class passengers. 10-19 Segment Margin Segment Margin The segment margin, which is computed by subtracting the traceable fixed costs of a segment from its contribution margin, is the best gauge of the long-run profitability of a segment. Time 10-20 Traceable and Common Costs Fixed Costs Traceable Don’t allocate common costs to segments. Common 10-21 Activity-Based Costing Activity-based costing can help identify how costs shared by more than one segment are traceable to individual segments. Assume that three products, 9-inch, 12-inch, and 18-inch pipe, share 10,000 square feet of warehousing space, which is leased at a price of $4 per square foot. If the 9-inch, 12-inch, and 18-inch pipes occupy 1,000, 4,000, and 5,000 square feet, respectively, then ABC can be used to trace the warehousing costs to the three products as shown. Pipe Products 9-inch 12-inch 18-inch Total Warehouse sq. ft. 1,000 4,000 5,000 10,000 Lease price per sq. ft. $ 4 $ 4 $ 4 $ 4 Total lease cost $ 4,000 $ 16,000 $ 20,000 $ 40,000