ACCT 2102 1st Edition Lecture 28 Outline of Last Lecture I Operating Expenses Budget Continued II Cash Budgets Outline of Current Lecture III Decentralized Operations IV Responsibility Centers V Performance Reports Current Lecture Performance Evaluation Chapter 10 III Decentralized Operations Everyone is involved in the decision making similar to participative budgeting Companies that decentralize split their operations into different operating segments Advantages Frees top management focus on bigger problems Encourages the use of expert knowledge Improves customer relations respond to customers quicker Provides training train lower level employees Improves motivation and retention Disadvantages Duplicates costs Problems achieving goal congruence employees and company have same goal Performance evaluation systems should Clearly communicate expectations Provide benchmarks for operations Motivate segment managers Ways to decentralize Geography Among product lines Customer base ex one target market may be individuals and another may be companies These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Responsibility what you are in charge of IV Performance Evaluation Systems Responsibility Accounting You can t be more than one type these are mutually exclusive Responsibility centers Cost only responsible for controlling cost Compare actual costs to budgeted costs using performance reports Ex purchasing dept distribution dept for magazine company Revenue only responsible for generating revenue Compare actual revenue to budgeted revenue using performance reports Profit held responsible for generating revenue and controlling costs Compare actual revenues expenses and profits to the budget using performance reports and segmented income statements Ex A store for a clothing company Investment the company itself is always an investment center Determine if assets were used efficiently to generate profit using Return on Investment and Residual Income V Performance Reports BVA Reports Budget vs Actual Compares actual revenue and expenses against budgeted revenue and expenses to calculate a variance Favorable variance F Cost actual budget Revenue actual budget Unfavorable variance U Cost actual budget Revenue actual budget Analyze using management by exception Used to determine which variances need an explanation Calculate materiality threshold given on test o Use this number to determine when variances are material and therefore large enough to investigate Favorable is not always good and unfavorable is not always bad If you have an occurrence that falls within an acceptable range of outcome it is immaterial ignore it If you have an occurrence that happens outside an acceptable range of outcomes it is material needs explanation
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