Slide 1 ___________________________________ 8.1 Re sponsibility Ac - - PDF document

Slide 1

8.1 Re sponsibility Ac c ounting

• De c e ntr

a lization within or g anizations

• Adva ntag e s
• T
• p mana g e me nt re lie ve d of da y-to da y

ac tivitie s

• L
• we r- le ve l mana ge rs ofte n ha ve be tte r

knowle dg e of the de tails

• L
• we r- le ve l mana ge rs a re quic ke r to re spond

to c ustome r ne e ds

• Provide s lowe r- le ve l ma nag e rs e xpe rie nc e in

de c ision making proc e ss

• L
• we 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

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Re sponsibility Ac c ounting

2005 K D Ha the wa y-Dia l

• De c e ntra liza tion within
• rg a niza tions
• Disadvantage s
• L
• we r-le ve l mana ge rs ma y not grasp

the “big pic ture ”

• L

a c k of c oordination among st ma nag e rs – too ma ny c owboys

• L
• we r-le ve l mana ge rs ma y have

diffe ring obje c tive s from the c ompany

• May be diffic ult to spr

e ad innova tion

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Cost, Pr

• fit & Inve stme nt Ce nte r

s

• Cost Ce nte r

s

• Mana ge r

s ha ve c ontr

• l ove r

c osts

• Mana ge r

s do not have c ontr

• l
• ve r

:

• Re ve nue , or
• Inve stme nt funds
• Mana ge rs e xpec te d to minimize

c osts

• 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

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Slide 4

Cost, Pr

• fit & Inve stme nt Ce nte r

s

2005 K D Ha the wa y-Dia l

• Profit Ce nte rs
• Manag e r

s ha ve c ontr

• l ove r

both:

• Costs and
• Re ve nue
• Manag e r

s do not have c ontr

• l ove r

inve stme nt funds

• Pe rfor

ma nc e me asure me nt is a c tual profit to proje c te d or budge te d pr

• fit

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Cost, Pr

• fit & Inve stme nt Ce nte r

s

• Inve stme nt Ce nte r

s

• Mana ge r

s ha ve c ontr

• l ove r

:

• Costs,
• Re ve nue , a nd
• Inve stme nts in ope rating a sse ts
• 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

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Org aniza tiona l Vie w

2005 K D Ha the wa y-Dia l

• 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

• 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

• Corpora te he a dqua rte rs would be

c la ssifie d a s the inve stme nt c e nte r

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Slide 7

Se g me nte d Sta te me nts

• Ca n be pre pa r

e d for ma ny le ve ls

• Commonly use a c ontribution

ma rg in forma t

• F

ixe d c osts a re broke n furthe r into:

• T

r ac e a ble

• c ommon

2005 K D Ha the wa y-Dia l

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Se g me nte d Sta te me nt

18,000 13,000 31,000

T ra c e a ble F ixe d Costs

14,000 20,000 34,000

Se gme nt Margin

22,000

Common F ixe d Costs

12,000

Ne t o pe ra ting inc ome

32,000 33,000 65,000

Contribution Margin

18,000 42,000 60,000

Variable Expe nse

50,000 75,000 $125,000

Sale s

Divisio n 2 Divisio n 1 T

• tal Co mpany

SEGMENT E D MARG IN

COMMON FIXED COST S T RAC EABL E FIXED C OST S

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T r ac e able & Common F ixe d Costs

• T

r a c e able fixe d c ost

• Inc ur

re d c ost be c a use of the se g me nt

• If the se g me nt wa s e limina te d the fixe d c ost

would be e liminate d also

• Some e xample s:
• F

ac tory mana ge r of a ma nufa c turing pla nt

• Insura nc e on the ma nufa c turing pla nt
• Ma inte na nc e on the ma nufa c turing pla nt
• Charg e d to the se g me nts

2005 K D Ha the wa y-Dia l

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Slide 10

T r ac e able & Common F ixe d Costs

• Common fixe d c ost
• Costs tha t suppor

t the ope r ation of mor e than one se gme nt

• If a se gme nt was e liminate d the

fixe d c ost would NOT be e liminate d

• Some e xa mple s:
• CE

O’s salary

• Cost of he ating a n e ntir

e fac ility tha t house s se ve ra l se g me nts

• T

he c ost of motor pool for the c ompany

• 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

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Se g me nt Ma rg in

• 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

• Inc lude s only those c osts c a use d by the

se g me nt

2005 K D Ha the wa y-Dia l

• He lps a sse ss future

profita bility of the se g me nt

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Assig ning T ra c e a ble Costs

• Ina ppropria te ly a ssig ne d tra c e d

c osts

• inc or

r e c tly tr ac ing c osts

• Costs that c an be dire c tly trac e d to
• ne se gme nt should not be alloc a te d

to a nothe r

• F
• r 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

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Slide 13

Assig ning T ra c e a ble Costs

• Ina ppropria te Alloc a tion Ba se
• Using arbitrary base s
• Costs should only be alloc ate d whe n

the base drive s the c ost proportionally

• 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

• F
• r 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

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Dividing Common Costs

• Assig ning c ommon c osts

ra ndomly will distort se g me nt pe rforma nc e

• Common c osts not

ma na g e a ble by se g me nts ma na g e r

• F
• r 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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