responsibility accounting

or
organizational structure
Segment Margin Sales
Centralization X
top management retains the major portion of the Sales Investment
authority or
Profit Margin X Investment Turnover
Decentralization or
Return on Sales X Investment Turnover
top management delegates decision making
authority to subunit managers
economic value added
After tax profit
advantages of decentralization
(WACC X Investment)
1. Enhanced specialization
EVA
2. Training
3. Motivated managers
4. Defined Span of Control performance report
5. Faster decision making Sales
Variable Manufacturing Cost
disadvantages of decentralization Manufacturing Margin
1. Need for competent people Variable Nonmanufacturing Cost
2. Measurement system Contribution Margin (Short-run perf margin
3. Sub-Optimization Controllable direct fixed cost
Controllable Margin
objective Noncontrollable direct fixed cost
Goal congruence Segment Margin
Indirect Fixed Cost
Operating Income
responsibility centers
objective Evaluation
cost minimize cost VA
revenue revenue VA
profit revenue VA
cost
investment revenue VA ++
cost ROI, RI &
invest EVA

formulas
variance analysis
Sales budgeted
Sales Actual
Sales Variance

Cost budgeted
Cost Actual
Cost Variance

residual income
Sales
(Total Expenses)
Segment Margin
(Imputed Interest)
Residual Income

return on investment
Segment Margin / Investment