Description
This is a PPt about organizational Structure and responsibility accounting PPT covers topics like decentralization, segment reporting, responsibility accounting, residual income etc.
Benefits of Decentralization
Lower-level managers gain experience in decision-making. Lower-level decision often based on better information.
Top management freed to concentrate on strategy.
Decision-making authority leads to job satisfaction.
Improves ability to evaluate managers.
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.
A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. A segment can be . . .
A Sales Territory
An Individual Store
Quick Mart
A Service Center
Cost Centre
Revenue Centre
Profit Centre
Investment Centre
Cost, revenue, profit, and investment centres are all known as responsibility centres.
Responsibility Centre
KEY PRINCIPLE
Hold a manager responsible for actions that she/he is authorized to take and for the results that she/he can control (or at least influence)
?
?
? ?
?
? ?
Meeting cost/revenue targets Cost/sales variances Profitability Return on assets (ROA) Return on investment (ROI) Residual income (RI) Economic value-added (EVA)
Income before interest and taxes (EBIT)
Net operating income ROI = Average operating assets
Cash, accounts receivable, inventory, plant and equipment, and other productive assets.
ROI =
ROI =
Margin
Net operating income Sales
?
×
Turnover
Sales Average operating assets
Net operating income above some minimum return on operating assets
?
Similar to residual income Developed by a consulting organization Many accounting adjustments required
?
?
?
?
?
Used when products/services are ‘sold’ to sister segments within the organization Relevant only in the case of profit/investment centres Facilitates the computation of revenue for the selling segment and cost for the buying segment
Important Issues
Establishing transfer price (methods) Establishing transfer price (people involved)
Influencing Factors
Existence of an outside market for goods/services transferred
Transfer Pricing Policy
Industry norms Existing laws
Dispute resolution mechanism
Management style
Organizational culture
Cost Drivers
STRUCTURAL COST DRIVERS EXECUTIONAL COST DRIVERS
Scale Scope Experience Technology Variety Complexity
MORE IS NOT NECESSARILY DESIRABLE
Workforce involvement Total quality management Capacity utilization Plant layout efficiency Product configuration effectiveness Linkages with customers and suppliers HIGHER DEGREE IS DESIRABLE
doc_453962784.pptx
This is a PPt about organizational Structure and responsibility accounting PPT covers topics like decentralization, segment reporting, responsibility accounting, residual income etc.
Benefits of Decentralization
Lower-level managers gain experience in decision-making. Lower-level decision often based on better information.
Top management freed to concentrate on strategy.
Decision-making authority leads to job satisfaction.
Improves ability to evaluate managers.
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.
A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. A segment can be . . .
A Sales Territory
An Individual Store
Quick Mart
A Service Center
Cost Centre
Revenue Centre
Profit Centre
Investment Centre
Cost, revenue, profit, and investment centres are all known as responsibility centres.
Responsibility Centre
KEY PRINCIPLE
Hold a manager responsible for actions that she/he is authorized to take and for the results that she/he can control (or at least influence)
?
?
? ?
?
? ?
Meeting cost/revenue targets Cost/sales variances Profitability Return on assets (ROA) Return on investment (ROI) Residual income (RI) Economic value-added (EVA)
Income before interest and taxes (EBIT)
Net operating income ROI = Average operating assets
Cash, accounts receivable, inventory, plant and equipment, and other productive assets.
ROI =
ROI =
Margin
Net operating income Sales
?
×
Turnover
Sales Average operating assets
Net operating income above some minimum return on operating assets
?
Similar to residual income Developed by a consulting organization Many accounting adjustments required
?
?
?
?
?
Used when products/services are ‘sold’ to sister segments within the organization Relevant only in the case of profit/investment centres Facilitates the computation of revenue for the selling segment and cost for the buying segment
Important Issues
Establishing transfer price (methods) Establishing transfer price (people involved)
Influencing Factors
Existence of an outside market for goods/services transferred
Transfer Pricing Policy
Industry norms Existing laws
Dispute resolution mechanism
Management style
Organizational culture
Cost Drivers
STRUCTURAL COST DRIVERS EXECUTIONAL COST DRIVERS
Scale Scope Experience Technology Variety Complexity
MORE IS NOT NECESSARILY DESIRABLE
Workforce involvement Total quality management Capacity utilization Plant layout efficiency Product configuration effectiveness Linkages with customers and suppliers HIGHER DEGREE IS DESIRABLE
doc_453962784.pptx