Accounting 299 Exam 1 (chapter 1, 13, 9 and 12).
disadvantages of RI
-Size sensitive (larger divisions have larger RI) -Depends on cost of capital used. it uses absolute dollar which makes it impossible to compare different projects, sizes, and division.
Advantages of RI
-Supports incentive to accept all projects with ROI > Minimum rate of return -can use the minimum rate of return to adjust for differences in risk -Can use a different minimum rate of return for different types of assets
here are 3 types of controls implemented by an organization:
1. People Controls - ex: corporate culture, codes of conduct, mission statements, etc. 2. Action Controls - ex: retina scanners, requiring two signatures for checks, etc. 3. Results Controls - ex: bonus awarded if certain level of sales reached, etc.
What caused Union Carbide's deadly gas leak in Bhopal, India, which killed 3,000 and injured 42,000?
A combination of low staff levels, numerous safety issues, and a lack of immediate employee attention to the problem as pressure built up inside the tank.
allocated costs
A cost that can not be directly linked to a product or activity.
Global Reporting Initiative (GRI)
A network-based organization that pioneered the world's most widely used sustainability reporting framework. in 1997
SASB (Sustainability Accounting Standards Board)
A nonprofit entity engaged in creating and disseminating sustainability accounting standards for use by companies.
Certified Management Accountant (CMA)
A professional certification issued by the IMA to designate expertise in the areas of managerial accounting, economics, and business finance. Must have a 4-year degree, pass the 2 part exam, and have at least 2 years of management accounting or financial management.
Responsibility Centers
A responsibility center is a segment of an organization for which a particular executive is responsible. Managers are responsible for their own subunit. categorized as: Cost center, Revenue center, Profit center, and Investment center.
Stakeholders
All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. eg lenders, employee and so on.
centralized organization
An organization in which high-level executives make most decisions and pass them down to lower levels for implementation
Decision Making
Choosing among two or more alternatives.
Advantages of a Centralized Structure
Clarity in decision making Streamlined policies and initiatives Control of the strategic direction of the organization
Disadvantage of a Decentralized Structure
Coordination issues Increased costs from duplication or redundant efforts Incongruity in operations Departments or divisions may become self-centered Operational isolation of divisions
Paris Climate agreement
Dec 2015, 196 countries adopted the accord to reduce climate change by 1.5 deg Cel.
to increase Sales margin
Increase Income, or increase qty sold or increase selling price And or decrease cost
What organization manages Managerial accounting professional
Institute for Management Accountants. Ima sets the requirements for certification as a CMA
Invested Capital
Invested capital can be defined as total assets, productive assets, or total assets minus current liabilities, with the last definition encouraging managers to minimize resources tied up in assets and maximize short-term credit to finance operations.
uncontrollable cost
Management cannot change or influence cost in the short run
Roles of Management
Planning, controlling and Decision Making.
Nestlé's reputation was damaged when the company was accused of which of the following?
Promoting inadequate nutrition in developing countries.
CHAPTER 13
SUSTAINABILITY REPORTING.
Capital Turnover
Sales per $ produced by every $ invested. sales Revenue/Invested Capital.
Planning
Setting objectives or goals and developing strategy to achieve those goals for an organization.
required rate of return
The minimum acceptable rate of return on an investment
Cost Center (CC)
The organization that gathers and distributes cost data. an organizational subunit where a manager is held responsible only for costs
Sustainability Reporting
The practice of a corporation publishing information about its economic, social, and environmental performance/ impact.
Solar energy
This is the form of energy that is renewable.
WACC
Weighted average cost of capital. The average cost of financing a firm in percentage terms. Debt: cost of capital X Proportion of total capital Equity Cost of capital X Proportion of total capital Sum of Debt + equity.
profit Center
a business segment whose manager has control over cost and revenue and is evaluated on these metrics only.
investment center
a business segment whose manager has control over cost, revenue, and investments in operating assets and is evaluated on these metrics only.
revenue center
a responsibility center in which managers are responsible for generating revenue
Balance Scorecard
a system of performance measures, including nonfinancial measures, used to assess company and division manager performance. Four perspectives: 1. Customer: what do customers think of us? 2. Internal processes: which of our ops are critical to meeting customer needs? 3. Innovation and learning: how can we improve? 4. Financial: what do our owners think of us?
Managerial Accounting
accounting used to provide information and analyses to managers inside the organization to assist them in decision making
full cost accounting
an accounting approach that attempts to factor in the price of disposal of product at expiration in the designing phase.
Certified Public Accountant (CPA)
considered the top tier in accounting certifications; must pass a four-part exam, with education and work experience requirements
Kaizen
continuous improvement: focuses on small day to day improvement.
controllable costs
costs that can be influenced or changed by management
Budget vs. Actual
differences/ budgeted x 100 difference = Actual - budget. (Cost center)
Advantages of ROI
it is measured in percentages instead of absolute dollar which makes it easy to compare different divisions or projects
Brutland Commission
layed the groundwork for sustainability i 1987 by a Norwegian P.M Gro Hartley.
Economic Added Value (EVA)
measures the amount of shareholders wealth being created by the company, division or project. after tax income - (Invested Capital x WACC)
Profit Margin
measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales net income/net sales
Sustainability
meeting the needs of the present without compromising the ability of future generations to meet their own needs
Controlling
monitoring performance, comparing it with goals, and taking corrective action as needed
Sales Margin
operating income/sales Profit generated by each dollar of sales made.
Weakness of ROI
potential to decrease goal congruence.
Tripple Bottom Line
proposed by John Elkington to include firms social, economic and environmental performance in financial reporting.
Responsibility Accounting
provides a method of encouraging goal congruence by setting and communicating the performance measures by which managers will be evaluated.
Theory of Constraints (TOC)
recognizing and eliminating bottle necks that may be limiting profit within the organization
Managerial accounting skills set required?
strong analytical skills, excellent verbal and written communication skills, strong knowledge base about the industry they work in.
Lean Six Sigma
team members work to eliminate waste in products and processes with the belief that anything that is not necessary (redundant steps or procedures for example) should be eliminated to reduce cost..
ERP (Enterprise Resource Planning)
technology systems that helps streamline a company's operation to allow for more rapid response to change.
Financial Accounting
the branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders
decentralized organization
the decision-making authority occurs at different levels within the organization.
Net Income
the difference between total revenue and total expenses
Residual Income
the net operating income that an investment center earns above the minimum required return on its operating assets Income - (invested capital x Minimum Required Rate of Return) we want a positive #
return on investment
the percentage of the total cost of purchasing an investment and the profit made from selling that investment Income/ Avg Invested Capital. OR Sales Margin x Capital Assets Turnover
Total Quality Management (TQM)
this focuses on quality improvement and employees look to find waste and errors in all aspect of the business and eliminate waste and errors.
Management Control System
this is a structure designed by the organization to measure and evaluate the success of the decisions that have been implemented to reach strategic goals.
Just-in-time (JIT)
this is based on the idea that goods should be made only as needed so that inventory is almost non-existent.
Disadvantages of a Centralized Structure
• Increased bureaucracy • Reduced flexibility • Slower than decentralized employee may feel excluded and unmotivated
Advantages of a Decentralized Structure
• More responsive to local needs • Better understanding of local requirements • Closer relationship with internal customers • More effective use of local suppliers • Better risk assessment and response Increased employee morale quick decision and response time. Link between compensation and responsibility.
