ACCT 2102 1nd Edition Lecture 16 Outline of Last Lecture II Performance Evaluation a Decentralized Operations b Performance Systems c Performance Reports Outline of Current Lecture III Segmented Income Statement IV ROI and RI V Flexible Budgets Current Lecture Segmented Income Statement Segmented Income Statements derive from Chapters 7 and 8 The formula is given the sales revenue minus variable costs equals contribution margin You then take the contribution margin and subtract traceable fixed costs to receive your segment margin Only include common fixed costs when questions are asking for total operating income ROI and RI ROI or Return on Investment measures the amount of income an investment center earns relative to the size of its assets It s used to determine how to invest excess funds and to compare a division s performance across periods The formula for ROI is equal to the sales margin multiplied by the capital investment turnover Basically income divided by assets is equal to income divided by sales revenue times sales revenue divided by assets The first portion of the formula income divided by assets shows the amount for every dollar spent that you will receive in operating income The second portion income divided by sales revenue shows the amount for every dollar in sales revenue that you will receive in income The last portion sales revenue divided by assets shows that for every dollar spent you re going to receive in sales revenue 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 Flexible Budgets Managers can get better insight when evaluating performance by using a flexible budget This budget is prepared by a different level of volume than what was originally anticipated It is prepared for multiple activities and involves the actual volume A flexible budget variance is the difference between the flexible budget and the actual results
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