Chapter 10
Revenue Center
A responsibility center in which managers are responsible for generating revenue
Cost Center
A responsibility center in which managers are responsible for controlling cost
Management by Exception
A management technique in which managers only investigate budget variances that are relatively large
Responsibility Center
A part of an organization whose manager is accountable for planning and controlling certain activities
Balanced Scorecard
A performance evaluation system that integrates financial and operational performance measures along four perspectives: financial, customer, internal business, and learning and growth
Decentralize
A process where companies split their operations into different operating segments
Performance scorecard or Dashboard
A report displaying the measurement of Key Performance Indicators (KPIs), as well as their short-term and long-term targets
Profit Center
A responsibility center in which managers are responsible for both revenues and costs, and therefore profits
Investment Center
A responsibility center in which managers are responsible for generating revenue, controlling costs, and efficiently managing the division's assets
Flexible Budget
A summarized budget prepared for different levels of volume
Responsibility Accounting
A system for evaluating the performance of each responsibility center and its manager
Favorable Variance
A variance that causes operating income to be higher than budgeted
Unfavorable Variance
A variance that causes operating income to be lower than budget
Which of the following is not an advantage of decentralization?
Achieving goal congruence
Companies often decentralize their operations by
All of the above (geographic area, product line, customer base)
Sales Margin
Operating income divided by sales revenue. The sales margin shows how much income is generated for every $1.00 of sales
Which of the following is true?
Favorable variances are variances that cause operating income to be higher than budgeted
Direct Fixed Expenses
Fixed expenses that can be traced to the segment
Common Fixed Expenses
Fixed expenses that cannot be traced to the segment
Return on Investments (ROI)
Operating income divided by total assets. The Return on Investments (ROI) measures the profitability of a division related to the size of its assets
Gross Book Value
Historical cost of assets
Net Book Value
Historical cost of assets less accumulated depreciation
"Number of new products developed" would be a key performance indictor (KPI) for which of the four balanced scorecard perspectives?
Internal business
In terms of responsibility centers, a large corporate division would be considered a(n)
Investment center
"Hours of employee training" would be a key performance indicator (KPI) for which of the four balanced scorecard perspectives?
Learning and growth
A segment margin is the operating income generated by subtracting
Only direct fixed expenses from a segment's contribution margin
Residual Income
Operating income minus the minimum acceptable operating income given the size of the division's assets
Lag Indicators
Performance indicators that revel the results of past actions and decisions
Lead Indicators
Performance measures that predict future performance
Performance Reports
Reports that compare actual results against budget figures
Return on investment (ROI) can be restated as which of the following
Sales margin (X) Capital turnover
Capital Turnover
Sales revenue divided by total assets. The capital turnover shows how much sales revenue is generated with every $1.00 of assets
Key Performance Indicators (KPIs)
Summary performance metrics used to assess how well a company is achieving its goals
Vertical Integration
The acquisition of companies within one's supply chain
Master Budget Variances
The difference between actual results and the master budget
Variance
The difference between an actual amount and the budget
Flexible Budget Variance
The difference between the flexible budget and actual results. The flexible budget variances are due to something other than volume
Volume Variance
The difference between the master budget and the flexible budget. The volume variance arises only because the actual sales volume differs from the volume originally anticipated in the master budget
Segment Margin
The operating income generated by a profit or investment center before subtracting the common fixed costs that have been allocated to the center
Transfer Price
The price charged for the internal sale of product between two different divisions of the same company
Which of the following is false?
The volume variance is due to causes other than volume
Which of the following is not a valid strategy for determining transfer price?
Using the price set by GAAP
Goal Congruence
When the goals of the segment managers align with the goals of top management
