Slide 1 ___________________________________ 8.1 Re sponsibility Ac c ounting o De c e ntr a lization within or g anizations ___________________________________ o Adva ntag e s o T op mana g e me nt re lie ve d of da y-to da y ac tivitie s ___________________________________ o L owe r- le ve l mana ge rs ofte n ha ve be tte r knowle dg e of the de tails o L owe r- le ve l mana ge rs a re quic ke r to re spond to c ustome r ne e ds ___________________________________ o Provide s lowe r- le ve l ma nag e rs e xpe rie nc e in de c ision making proc e ss o L owe r le ve l mana ge rs ofte n more motiva te d, ___________________________________ ta lk about inc re a se d job sa tisfa c tion whic h improve s re te ntion ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________ Slide 2 ___________________________________ Re sponsibility Ac c ounting o De c e ntra liza tion within ___________________________________ org a niza tions o Disadvantage s ___________________________________ o L owe r-le ve l mana ge rs ma y not grasp the “big pic ture ” o L a c k of c oordination among st ___________________________________ ma nag e rs – too ma ny c owboys o L owe r-le ve l mana ge rs ma y have diffe ring obje c tive s from the c ompany ___________________________________ o May be diffic ult to spr e ad innova tion ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________ Slide 3 ___________________________________ Cost, Pr ofit & Inve stme nt Ce nte r s o Cost Ce nte r s ___________________________________ o Mana ge r s ha ve c ontr ol ove r c osts o Mana ge r s do not have c ontr ol ove r : ___________________________________ o Re ve nue , or o Inve stme nt funds ___________________________________ o Mana ge rs e xpec te d to minimize c osts o Standar d c osts a nd flexible budg et ___________________________________ var ianc e s use d to e valuate c ost c e nte r pe rfor ma nc e ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________
Slide 4 ___________________________________ Cost, Pr ofit & Inve stme nt Ce nte r s o Profit Ce nte rs ___________________________________ o Manag e r s ha ve c ontr ol ove r both: o Costs and ___________________________________ o Re ve nue o Manag e r s do not have c ontr ol ove r inve stme nt funds ___________________________________ o Pe rfor ma nc e me asure me nt is a c tual profit to proje c te d or ___________________________________ budge te d pr ofit ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________ Slide 5 ___________________________________ Cost, Pr ofit & Inve stme nt Ce nte r s o Inve stme nt Ce nte r s ___________________________________ o Mana ge r s ha ve c ontr ol ove r : o Costs, ___________________________________ o Re ve nue , a nd o Inve stme nts in ope rating a sse ts o Pe rfor ma nc e me asure me nt is the ___________________________________ r e tur n on inve stme nt ___________________________________ ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________ Slide 6 ___________________________________ Org aniza tiona l Vie w o Administr ative de pa r tme nts suc h as ___________________________________ fina nc e , HR, pa yroll a nd le g a l a re c la ssifie d a s c ost c e nte rs ___________________________________ o Wa re house s, ma nufa c turing pla nts, a nd distribution c e nte rs a re c la ssifie d a s profit c e nte rs ___________________________________ o Corpora te he a dqua rte rs would be c la ssifie d a s the inve stme nt c e nte r ___________________________________ ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________
Slide 7 ___________________________________ Se g me nte d Sta te me nts o Ca n be pre pa r e d for ma ny ___________________________________ le ve ls o Commonly use a c ontribution ___________________________________ ma rg in forma t o F ixe d c osts a re broke n furthe r ___________________________________ into: o T r ac e a ble o c ommon ___________________________________ ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________ Slide 8 ___________________________________ Se g me nte d Sta te me nt T RAC EABL E FIXED C OST S ___________________________________ T o tal Co mpany Divisio n 1 Divisio n 2 Sale s $125,000 75,000 50,000 Variable Expe nse 60,000 42,000 18,000 Contribution Margin 65,000 33,000 32,000 ___________________________________ T ra c e a ble F ixe d Costs 31,000 13,000 18,000 Se gme nt Margin 34,000 20,000 14,000 Common F ixe d Costs ___________________________________ 22,000 Ne t o pe ra ting inc ome 12,000 SEGMENT E D MARG IN ___________________________________ COMMON FIXED COST S ___________________________________ ___________________________________ Slide 9 ___________________________________ T r ac e able & Common F ixe d Costs o T r a c e able fixe d c ost ___________________________________ o Inc ur re d c ost be c a use of the se g me nt o If the se g me nt wa s e limina te d the fixe d c ost would be e liminate d also o Some e xample s: ___________________________________ o F ac tory mana ge r of a ma nufa c turing pla nt o Insura nc e on the ma nufa c turing pla nt o Ma inte na nc e on the ma nufa c turing pla nt ___________________________________ o Charg e d to the se g me nts ___________________________________ ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________
Slide 10 ___________________________________ T r ac e able & Common F ixe d Costs o Common fixe d c ost ___________________________________ o Costs tha t suppor t the ope r ation of mor e than one se gme nt o If a se gme nt was e liminate d the ___________________________________ fixe d c ost would NOT be e liminate d o Some e xa mple s: ___________________________________ o CE O’s salary o Cost of he ating a n e ntir e fac ility tha t house s se ve ra l se g me nts ___________________________________ o T he c ost of motor pool for the c ompany o Cha r ge d to entity as a whole a nd not to individual se gme nts ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________ Slide 11 ___________________________________ Se g me nt Ma rg in o Ca lc ula te d by subtra c ting “tra c e a ble ” ___________________________________ fixe d c osts from the se g me nts c ontribution ma rg in ___________________________________ o Inc lude s only those c osts c a use d by the se g me nt ___________________________________ o He lps a sse ss future profita bility of the se g me nt ___________________________________ ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________ Slide 12 ___________________________________ Assig ning T ra c e a ble Costs o Ina ppropria te ly a ssig ne d tra c e d ___________________________________ c osts o inc or r e c tly tr ac ing c osts ___________________________________ o Costs that c an be dire c tly trac e d to one se gme nt should not be alloc a te d to a nothe r ___________________________________ o F or e xa mple : Assigning ha za r dous waste c osts to all de par tme nts inste ad of the one tha t c re ate s the ___________________________________ waste ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________
Slide 13 ___________________________________ Assig ning T ra c e a ble Costs o Ina ppropria te Alloc a tion Ba se ___________________________________ o Using arbitrary base s o Costs should only be alloc ate d whe n the base drive s the c ost proportionally ___________________________________ o A base should only be use d whe n a 10% inc re a se shows a 10% inc re a se in the c ost ___________________________________ o F or e xa mple : mac hine hours should only be use d as a base whe n a c ausa l re la tionship be twe e n it a nd the trac e a ble ___________________________________ fixe d c osts suc h a s ma inte nanc e a nd lubric ant c a n be shown ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________ Slide 14 ___________________________________ Dividing Common Costs o Assig ning c ommon c osts ___________________________________ ra ndomly will distort se g me nt pe rforma nc e ___________________________________ o Common c osts not ma na g e a ble by se g me nts ma na g e r ___________________________________ o F or e xa mple a ssig ning the c ost of the CE O ’s c or pora te ___________________________________ je t to se g me nts ___________________________________ 2005 K D Ha the wa y-Dia l ___________________________________
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