12-1

12
McGraw-Hill/Irwin

Chapter Twelve

Responsibility Accounting, Quality Control, and Environmental Cost Management

12-2

Responsibility Centers
A subunit in an organization whose manager is held accountable for specified financial results.

McGraw-Hill/Irwin

. The Paint Department in an automobile plant. Revenue Center Segment is responsible for the revenue of a unit. McGraw-Hill/Irwin The Reservations Department of an airline.12-3 Responsibility Centers Cost Center Segment has control over the incurrence of costs.

Investment Center Segment has control over profits and invested capital. Company-owned restaurant in a fast-food chain.12-4 Responsibility Centers Profit Center Segment has control over both costs and revenues. . McGraw-Hill/Irwin A division of a large corporation.

12-5 Measuring Management Performance Evaluation Tool Cost Center Profit Center Investment Center McGraw-Hill/Irwin Cost standards Contribution income statement Rate of return on invested funds or residual income .

of key financial results appropriate for the type of responsibility center.12-6 Performance Reports Shows the budgeted and actual amounts. and the variances between these amounts. McGraw-Hill/Irwin .

12-7 Activity-Based Responsibility Accounting Traditional responsibility-accounting systems tend to focus on the financial performance measures of cost. McGraw-Hill/Irwin . and profit for subunits of the organization. revenue. In activity-based responsibility accounting attention is directed not only to costs incurred but also to the activity creating the cost. Activity-based costing systems associate costs with the activities that drive those costs.

12-8 Behavioral Effects of Responsibility Accounting Controllability Information versus Blame McGraw-Hill/Irwin Motivating Desired Behavior .

The Operating Section of a hospital McGraw-Hill/Irwin . revenue. or profit data.12-9 Segmented Reporting A segment is any part or activity of an organization about which a manager seeks cost.

S. Sales Foreign Sales • Sales Territories McGraw-Hill/Irwin . Sales Foreign Sales U.12-10 Segmented Reporting Cell Phone Division Product Lines • Systems Personal U.S.

Controllable versus uncontrollable expenses. McGraw-Hill/Irwin .  Segmented income statement.12-11 Key Features of Segmented Reporting  Contribution format.

000) 45.000 105.000) 70.000 (80.000) 150.000 (150.000 Personal $ 100.000 60.000) (95.000 (35. McGraw-Hill/Irwin .000) (45.12-12 Segmented Income Statement Contribution Format Sales Variable costs CM Traceable FC Segment margin Common costs Net income Income Statement Cell Phone Division Systems $ 300.000 Costs that cannot be controlled by the segment manager are isolated.000 $ 60.000 (55.000 $ 200.000) 10.000 10.

but we need to quote a price that reflects the value of these services. . We can handle that . . Special credit terms. and JIT delivery. I need . Great field service. Special packing. Small order lots.12-13 Customer Profitability Analysis and Activity-Based Costing Let’s see. Customer McGraw-Hill/Irwin Company Sales Rep .

12-14 Total Quality Management Design Grade Quality Conformance McGraw-Hill/Irwin .

Grade Requires a certain . Degree to which actual product or service meets its design specs.12-15 Total Quality Management Ranking between products or services having the same functional use. . . Quality of Conformance Judged by . and is free of mfg. Product meets customer expectations for the grade level chosen. . Quality of Design Must be supported by . Customers McGraw-Hill/Irwin . . . . defects.

McGraw-Hill/Irwin . Internal failure costs. and External failure costs. Appraisal costs.12-16 Cost of Quality Quality costs include the follows:     Prevention costs.

12-17 Traditional Perspective of Product Quality Costs Total Quality Costs Prevention and Appraisal Costs Failure Costs 0% McGraw-Hill/Irwin Minimum 100% Percentage of Defective Products .

12-18 Quality Cost Reports A graphic Quality Cost Report might look like this: Quality Cost Report 300.000 50.000 250.000 Prevention Appraisal Internal failure External failure McGraw-Hill/Irwin .000 150.000 200.000 100.

 Sustain quality of product. Effective quality control system in place. McGraw-Hill/Irwin . and that the target level of product quality be maintained.  Provide purchaser confidence in the product.12-19 ISO 9000 Standards The International Standards Organization (ISO). require that a manufacturer have a well-defined quality control system in place.

12-20 End of Chapter 12 McGraw-Hill/Irwin .

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