University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

357

Pages:

2
Author:

stud_ice13

RESPONSIBILITY ACCOUNTING Responsibility accounting is a management control system that divides an organization into various centers for accountability. Key types of centers include: • • • Cost Center: Focuses on controlling costs without directly generating revenues. Profit Center: Manages both costs and revenues to determine profitability. Investment Center: Controls costs, generates revenues, and oversees investment decisions. Cost Control: • • Controllable Costs: Expenses that managers can influence or control. Uncontrollable Costs: Expenses outside the manager’s direct control. PROFIT CENTERS • • Direct Expenses: Costs that can be directly traced to a specific department (not allocated). Indirect Expenses: Costs that benefit multiple departments, requiring allocation. Cost Allocation Methods: • • Indirect Expenses: Distributed based on relative benefit to departments (e.g., rent allocated by space occupied). Service Department Expenses: Assigned to operating departments (e.g., purchasing expenses). DEPARTMENTAL INCOME STATEMENTS • • Shows each department’s financial performance. Departmental Contribution to Overhead: Indicates how much a department contributes to covering overall overhead costs. INVESTMENT CENTERS • Evaluated based on metrics like Return on Investment (ROI) and Investment Turnover. BALANCED SCORECARD & TRANSFER PRICING • Balanced Scorecard: Framework for evaluating organizational performance across four perspectives: o Customers: Measures customer satisfaction. o Internal Processes: Focuses on critical operations. Innovation/Learning: Measures growth and improvement capabilities. o Financial: Evaluates profitability from an owner's perspective. Transfer Price: The internal price set for transferring goods or services between divisions. Cash Conversion Cycle: Measures the efficiency of managing cash flows within the organization. o • • KEY TERMS The section outlines critical concepts like: • • • • Decentralized Organization: Structure where decision-making is distributed across various units. Residual Income: Profit remaining after subtracting a charge for the cost of capital. Market-Based Transfer Price: Price set based on market rates for interdepartmental transactions. Negotiated Transfer Price: Price set through negotiation between departments. MULTIPLE CHOICE QUIZ EXAMPLES The quiz covers practical applications of these concepts, including allocating indirect expenses and calculating financial performance metrics like ROI and investment turnover. SUMMARY OF QUIZ ANSWERS • • • Allocation example: For advertising costs shared among departments based on sales, Appliances received an allocation of $67,500. ROI calculation: Determined as 37.5% based on the division’s provided data. Investment turnover: Calculated as 2.5 for a given department. This overview captures the principles and terminology of responsibility accounting, emphasizing how managers in various types of centers are accountable for different financial metrics and decisions.