ACC 212- CHAPTER 10

avg invested assets=

(beginning total assets + ending total assets) / 2

related-party transactions

Business transactions between units or divisions of the same company

Residual income=

Net Operating Income - (Average Operating Assets x Minimum Required Rate of Return)

return on investment=

Net Operating Income / Average Operating Assets

transfer price

amount that one division charges when it sells goods or services to another division of the same company

responsibility center

area of business that managers are responsible for

Investment center managers

authority to make decisions about how and where to invest the company's assets to drive long-term profitability

Revenue center managers are evaluated primarily on their ______. a) segment margin b) ability to develop cost-effective strategies c) ability to meet sales goals d) capital expenditure plan

c

required rate of return

compares net operating income to the minimum acceptable profit

goal incongruence

conflict of interest between what is best for the manager and what is best for the organization and its owners

The manager of a(n)__________ center does not have control over revenue or the use of investment funds.

cost

decentralized organization

decision making authority spread throughout organization

centralized organization

decision making kept at top of organization

leading indicators

future performance

responsibility accounting

managers are given responsibility for a particular part of the business and are then evaluated based on performance in that area

controllability principle

managers should only be evaluated based on things that are within their control

balanced scorecard

measures performance along several dimensions and includes measures that reflect past performance & future performance

segmented income statement

method of evaluating a profit center manager

profit margin=

net operating income / sales revenue

The manager of a(n)___________ center has control over both costs and revenues, but not over the use of _________ funds

profit, investment

lagging indicators

reflect past performance

hurdle rate

required rate of return

Profit center managers

responsible for generating profits for their area of the business

Revenue center managers

responsible for generating revenues for their segment of the business

investment turnover=

sales rev / avg invested assets

cost center managers

the authority to incur costs to support their areas of responsibility