midterm 4

what is decrentralization

splitting operations into different operating segments, management delegates decision-making responsibilities

what are the advantages to decentralization

frees top managements time, encourages use of expert knowledge, improves customer relations, provides training, improves motivation and retention

what are the disadvantages to decentralization

potentional duplication of costs, potential problems achieving goal congruence

responsibility centers

part of an org whose manager is accountable for planning and controlling certain activities (cost, revenue, profit, investment)

cost center

manufacturing plant, managers responsible for controlling costs (expenses, provides)

revenue centers

sales region, managers responsible for generating revenue (sales)

profit center

line of products, managers responsible for generating income and controlling costs (income)

investment center

frito-lay division, managers responsible for generating income and invested capital (subsidary)

performance report

compare actual revenues and expenses against budgeted figures.

segment margin

operating income generated by a profit or investment center before subtracting common fixed costs allocated to the center (segment margin-common fixed costs)

Return on investment (ROI)

operating income/total assets, expressed as a percentage measure of profitability (higher the better)

sales margin

operting income/sales

Capital turnover

sales/total assets

residual income

actual operating income-(target rate of return-total assets)

flexible budget

a budget prepared for a different level of volume than the one originally anticipated

standard cost

budget for a single-unit of product

types of standards

ideal, perfection, practical

standard cost of direct labor

standard quantity of DL*standard price of DL

direct labor rate variance (DLRV)

actual hours*(actual rate-standard rate)

direct labor efficiency variance (DLEV)

standard rate*(actual hours-standard hours allowed) (units produced*standard number of hours)

sustainability

The ability to maintain ecological balance by avoiding depletion of natural resources, ensuring environmental preservation for future generations.

3 pillars of sustainability

social, economic, and environmental

triple bottom line

profit, people, planet

7 reasons for adopting sustainable practices

To reduce costs, reduce risks, create new revenue, attract labor talent, attract capital, increase market share, and enhance brand reputation

forward-thinking business model

consider both internal and external costs, using cradle-to grave or cradle-to-cradle approaches to ensure long-term sustainability

environmental management accounting (EMA)

collects monetary and physical information to support sustainable business practices and decision-making

challenges with EMA

communication, hidden costs, aggregated accounting info, historical info, underdeveloped field

fraud

intentional deception for personal gain or to secure an unfair advantage, often involving financial misrepresentation

fraud triangle

pressure, opportunity, and rationalization

common features of internal controls

authorization, custody, and recording

account analysis and reconciliation

assessment of the ending balance or the components of activity

review

performed timely and documented examinations of financial statements and processes to ensure accuracy and compliance