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Managing Company Segments for Performance Excellence

Learn about Responsibility Centers, Controllability, and Departmental Performance Measurement in this comprehensive guide. Explore cost centers, profit centers, and investment centers, along with departmental expense allocation and nonfinancial performance measures.

judah-weber
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Managing Company Segments for Performance Excellence

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  1. ACTG 2120 Chapter 24–Performance Measurement and Responsibility Accounting

  2. Segments of Parts of a Company • Break down company into manageable parts by • Function • Territory • Line of business • Client • Motivation • Evaluation

  3. What is a Responsibility Center? It is any part, segment, or subunit of a business that needs control. It is headed by a manager who is “responsible” for its activities. – production – service

  4. Responsibility Centers • Responsibility • Often tied to “control” of the organizational unit • Organizational unit manager often has the authority to make decisions on behalf of the organizational unit • Unit often held accountable for decisions made by the organizational unit manager

  5. Controllability • It is the degree of influence that a specific manager has over costs, revenues, or other items in question. • Responsibility accounting focuses on information and knowledge, not control. • A responsibility accounting system could exclude all uncontrollable costs from a manager’s performance report. • In practice, controllability is difficult to pinpoint.

  6. Responsibility Centers • Cost/expense centers • Responsible for incurring costs/expenses; not accountable for generating revenues • Often measured by comparing actual costs to standard costs • Profit centers • Responsible for both revenues and costs • Measures include profitability measures • Investment centers • Responsible for revenues, costs, and assets used to generate profits. • Measured by return on investment and other measures

  7. Departmental Expense Allocation • Direct costs – can be specifically traced to goods and services • Ex.: Direct materials, Direct labor, salaries in a particular department, advertising for a particular program, commissions paid on sales of a good or service • Indirect costs • Are part of the cost of the good or service but cannot be physically traced to the goods or services • Are allocated to goods, services, and segments

  8. Departmental Income Statements • Departmental contribution to overhead • Report can include controllable and uncontrollable costs • Only controllable costs are included on each department’s report • Exhibit 24.16, page 1004

  9. Investment Center Performance • Return on investment: Departmental income Average departmental assets • Residual income: Departmental income – (target return x avrg. dept. assets)

  10. Nonfinancial Performance Measures • Any measure not based on the financial statements that is critical to your business: • Customer satisfaction • Quality • On-time delivery • Inventory turnover • Number of new products • Employee turnover • Wait time (retail)

  11. Balanced Scorecard

  12. Homework • Problems 24-2B, 24-3B*, BTN 24-3 • DUE WITH EXAM, FRIDAY, MAY 30

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