Professional Documents
Culture Documents
RESPONSIBILITY ACCOUNTING
1. By responsibility center
Responsibility has two facets, (1) the obligation to secure results, and (2)
the obligation to report back the results achieved to higher authority.
2. Cognitive limitations
6. Motivation
7. Enhanced competition.
COSTS OF DECENTRALIZATION
1. Some decisions made in one sub-unit may bring about negative effect to the
other sub-units or the organization as a whole.
Performance measures for investment centers usually attempt to assess how well
managers are utilizing invested assets of the division to produce profits by
relating operating profits to assets.
Operating income refers to earnings before interest and taxes. Operating assets
include all assets acquired to generate operating income, including cash,
receivables, inventories, land, buildings, and equipment.
The ROI formula can also be broken down into the product of margin and turnover.
Margin is the ratio of operating income to sales. Turnover is defined as
sales divided by average operating assets.
or
2. It can encourage myopic behavior, in that managers may focus on the short
run at the expense of the long run.
Residual income (RI) - the difference between operating income and the minimum
peso return required on a company’s operating assets. The equation for RI can
be expressed as follows:
TRANSFER PRICING
TRANSFER PRICE – the monetary value or the price charged by one segment of a
firm for the goods and services it supplies to another segment of the same firm.
• The maximum price should be no greater than the lowest market price at which
the buying segment can acquire the goods or services externally.
• The minimum price should be no less than the sum of the selling segment’s
incremental costs associated with the goods or services plus the opportunity
cost of the facilities used.
Strategy is defined as choosing the market and customer segments the business
unit intends to serve, identifying the critical internal and business processes
that the unit must excel at to deliver the value propositions to customers in
the targeted market segments, and selecting the individual and organizational
capabilities required for the internal, customer, and financial objectives.
d. The scorecards for individuals should contain only those performance measures
they can actually influence.
e. The ultimate objectives of the organization are usually financial, but better
financial results cannot be attained without improving customers’ perceptions
of the company’s products and services. In order to improve customers’
perceptions of products and services, it is usually necessary to improve
internal business processes so that the products and services are actually
better. And in order to improve the business processes, it is necessary that
employees learn.
The customer perspective is the source of the revenue component for the
financial objectives. This perspective defines and selects the customer and
market segments in which the company chooses to compete.
Process Perspective
To provide the framework needed for this perspective, a process value chain is
defined. The process value chain is made up of three processes: the innovation
process, the operations process, and the post sales process.
The learning and growth perspective is the source of the capabilities that
enable the accomplishment of the other three perspectives’ objectives.
a. Delivery Cycle Time. This is the total elapsed time between when an order is
placed by a customer and when it is shipped to the customer. Part of this time
is wait time that occurs before the order is placed into production.
b. Throughput (Manufacturing Cycle) Time. This is the total elapsed time between
when an order is initiated into production and when it is shipped to the
customer. It consists of process time, inspection time, move time, and queue
time. The only element that adds value is processing time. Inspection time,
move time, queue time, and their associated activities do not add value and
should be minimized.
Processing time
MCE =
Processing time + Move Time + Inspection Time + Wait time
PRODUCTIVITY MEASUREMENT