DOC PREVIEW
UNT ACCT 2020 - Return on investment and Residual Income
Type Lecture Note
Pages 4

This preview shows page 1 out of 4 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 4 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 4 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

I. Decentralization in OrganizationsII. Cost, Profit, Investment CentersIII. Return on InvestmentIV. Residual IncomeV. Delivery Performance MeasuresVI. Balanced ScorecardACCT 2020 1st Edition Lecture 18Outline of Last Lecture I. Computing VariancesII. Breaking Down Spending VariancesIII. Fixed Manufacturing Overhead VariancesOutline of Current LectureI. Decentralization in OrganizationsII. Cost, Profit, Investment CentersIII. Return on InvestmentIV. Residual IncomeV. Delivery Performance MeasuresVI. Balanced ScorecardCurrent LectureI. Decentralization in Organizations- Talking about companies that are decentralized, when the CEO does not make all of the decisions. Usually, lower-level managers. - Benefits o Top management freed to concentrate on strategyo Lower level managers  Can respond quickly to customersThese 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. Gain experience in decision-making Often based on better informationo Decision-making authority leads to job satisfaction- Disadvantageso Lower level managers may make decisions without seeing the “big picture”, might be just focusing on individual department or segment.o May be a lack of coordination among autonomous managers For example a time when Sony had managers competing against each other to sell the most products and waste timeo Lower level managers objectives may not be those of the organizationo May be difficult to spread innovative ideas in the organization o Mostly can be solved by helping managers see the “big picture” and have monthly meetings among departments and help them determine how to be on tract.II. Cost, Profit, Investment Centers- Cost Centero A segment whose manager has control over cots but not over revenues or investment funds. They only have control on costs because they are not bringing in any revenue. Law team, administration etc.- Profit Centero A segment whose manager has control over both costs and revenues but not control over investment funds. An example would be the cafeteria in a corporate building, revenue from the lunches and cost associated. - Investment Center o A segment whose manger has control over costs, revenues, and investments in operating assets. This manager could be responsible for all 3 of these responsibilities.III. Return on Investment- Formulaso ROI = Net operating income Average operating assetso Margin =Net operating income x Turnover = Sales Sales Average operating assetso So, ROI = MARGIN x TURNOVER- Criticismso Managers often inherit many committed costs over which they have no controlo Managers evaluated n ROI may reject profitable investment opportunitiesIV. Residual Income- Formulao RI = Net Operating Income – (Average operating assets x Min. rate of return) o If net operating income is greater than the part in parentheses, we WILL have residual income. ROI measures net operating income in percentages, while Residual income provides a dollar amount- Benefits o Residual Income is preferred over ROI sometimes, as it might encourage investment that at least meets their minimum required return.- Disadvantageso Residual income is just a dollar amount, while ROI is just a percentage. It’s hard to evaluate departments of different sizes. The best systems take several financialevaluations in mind when evaluating managers. V. Delivery Performance Measures- Delivery cycle time is the whole time when the goods are ordered till the goods are shipped.- Throughput Time includes process time, inspection time, move time, and queue time. o Process time is the only value-added time. Only time increasing the value for the customer, the company should try to decrease all wait times to improve efficiency.- Manufacturing cycle Efficiency = Value-Added Time (process time Manufacturing cycle time (throughput time)VI. Balanced Scorecard- Management translates its strategy into performance measures that employees understand and influenced- The balances scorecard relies on non financial measures in addition to financial measures:o Financial measures are lag indicators that summarize the results of past actions. Non-financial measures are leading indicators of future financial performance. They can be misleading due to the lack of customer satisfaction measurements. o Top managers are ordinarily responsible for financial performance measures – NOT lower level managers. Non-financial measures are more likely to be understood and controlled by lower level managers. For example customer service repetitive have little control over ROI, so can evaluate on different terms. - Balanced scored should have measures that have a cause and effect link. If we improve one measure than another should improve.- Incentive compensation should be linked to balanced scorecard performance measures. Financial: has aboutfinancial performanceimproved?Internal business processes:have we improved key businessprocesses so that we can delivermore value to the customers?Performancemeasures:Learning and Growth: Arewe maintaining our abilityto change and improve?Customer: do customersrecognize that we are deliveringmore


View Full Document

UNT ACCT 2020 - Return on investment and Residual Income

Type: Lecture Note
Pages: 4
Download Return on investment and Residual Income
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Return on investment and Residual Income and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Return on investment and Residual Income 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?