Kế toán, kiểm toán - Chapter 22: Decentralization and performance evaluation

Financial and Managerial AccountingWild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 22Decentralization and Performance EvaluationConceptual Learning ObjectivesC1: Distinguish between direct and indirect expenses and identify bases for allocating indirect expenses to departments.C2: Explain controllable costs and responsibility accounting.C3: Appendix 22A: Explain transfer pricing and methods to set transfer prices.C4: Appendix 22B: Describe allocation of joint costs across products.22-*A1: Analyze investment centers using return on total assets, residual income and balanced scorecard.A2: Analyze investment centers using profit margin and investment turnover.Analytical Learning Objectives22-*P1: Prepare departmental income statements and contribution reports.Procedural Learning Objectives22-*Provide informationfor managers to usein performanceevaluation.To control costs and expenses and assistwith evaluating managersperformances.PrimarygoalsDepartmental AccountingC122-*Managers use this information to:Control operations.Appraise performance.Allocate resources.Plan strategy The accounting system provides information about resources used and outputs achieved.Information forDepartmental EvaluationC122-* The type of accounting information provided depends on whether the department is a . . .Evaluated on ability tocontrol costs.Evaluated on abilityto generate revenuesin excess of expenses. CostcenterProfitcenterInformation forDepartmental EvaluationC122-*Information forDepartmental EvaluationInvestment CenterEvaluated on their use of center assets to generate income. C122-* Direct expenses are incurred for the sole benefit of a specific department. Indirect expenses benefit more than one department and are allocated among departments benefited.Departmental Expense AllocationC122-* Service department costs are shared, indirect expenses that support the activities of two or more production departments. Here are some examples of allocation bases.Bases for AllocatingService Department CostsC122-*Departmental Contribution to OHP1      HardwareHousewaresAppliances  Dept.Dept.Dept.CombinedSales $ 119,500 $ 71,700 $ 47,800 $ 239,000 Cost of goods sold 73,800 43,800 30,200 147,800 Gross profit on sales $ 45,700 $ 27,900 $ 17,600 $ 91,200 Operating expenses   Direct Expenses     Salaries Expense $ 15,600 $ 7,000 $ 7,800 $ 30,400 Depreciation Expense 400 100 200 700 Supplies Expense 300 200 100 600 Total Direct Expenses 16,300 7,300 8,100 31,700 22-*Continued.Departmental Contribution to OHP1     Departmental Contributions     To Overhead 29,400 20,600 9,500 59,500 Indirect Expenses: Rent Expense    10,800 Utilities Expense    1,800 Advertising Expense    1,000 Insurance Expense    1,900 Share of general office expense   15,300 Share of purchasing expenses   9,700 Total operating expenses    $ 40,500 Net income    $ 19,000 Contribution as percent of sales24.6%28.7%19.9%24.9%22-*Financial Performance Evaluation MeasuresOne of the ways to evaluate investment center managers is to use a measure called return on investment (or return on assets.)The formula for ROI is as follows:A1 Investment center net income  Investment center average invested assetsROI = 22-*Another measure of evaluating financial performance is by computing the investment center’s residual income.Financial Performance Evaluation MeasuresA1 Investment Center - Target investment net income center net income Residual Income = 22-*Balanced ScorecardThe Balanced Scorecard is a system of performance measures, including non-financial measures. It Is used to assess company and division performance based on four perspectives:A1CustomerInternal processesInnovation and LearningFinancial22-* To be of maximum benefit, responsibility reports should . . .Be timely.Be issued regularly.Be understandable.Compare budgetedand actual amounts.Responsibility AccountingPerformance ReportsC222-*End of Chapter 2222-*