Responsibility Accounting and Decentralization

allocated costs

costs that are generated by non–revenue generating portions of the business, such as corporate headquarters, that are assigned based on some formula to the revenue generating portions of the business

centralization

business structure in which one individual makes the important decisions and provides the primary strategic direction for the company

controllable costs

those that a company or manager can influence

cost approach

transfer pricing structure in which the transfer price may be based on total variable cost, full cost, or a cost-plus scenario, calculated by adding a markup to either variable cost or full cost

cost center

organizational segment in which a manager is held responsible only for costs

decentralization

business structure in which the decision-making is made at various levels of the

organization

discretionary cost center

organizational segment in which a manager is held responsible only for

controllable costs when there is not a well-defined relationship between the center’s costs and its services

or products

goal congruence

integration of multiple goals, either within an organization or across multiple components

or entities; congruence is achieved by aligning goals to achieve an anticipated mission

investment center

organizational segment in which a manager is accountable for profits (revenues minus

expenses) and the invested capital used by the segment

lower-level management

level of management that provides basic supervision and oversight for the

operations of the organization

management control system

structure within an organization that allows managers to establish,

implement, and monitor progress toward the strategic goals of the organization

market price approach

transfer pricing structure in which the transfer price is based on the price the seller

would use for an outside customer

mid-level management

level of management that receives direction from upper management and

supervises and provides direction to lower-level management

negotiated price approach

transfer pricing structure in which the transfer price is based on negotiations

between the buying segment and the selling segment

organizational chart

graphical representations illustrating the authority for decision-making and oversight

throughout an organization

profit center

organizational segment in which a manager is responsible for and evaluted on both revenues

and costs

residual income (RI)

amount of income a given division (or project) is expected to earn in excess of a firm’s

minimum return goal

responsibility accounting

method of encouraging goal congruence by setting and communicating the

financial performance measures by which managers will be evaluated

responsibility centers

segments in which supervisors or managers have responsibility for the performance

of the center and the authority to make decisions that affect the center

return on investment (ROI)

measure of the percentage of income generated by profits that were invested

in capital assets

revenue center

part of an organization in which management is evaluated based on the ability to generate

revenues; the manager's primary control is only revenues

segment

portion of the business that management believes has sufficient similarities in product lines,geographic locations, or customers to warrant reporting that portion of the company as a distinct part of

the entire company

transfer pricing

pricing structure used when one segment of a business “sells” goods to another segment

of the same business

uncontrollable costs

those that an organization or manager has little or no ability to influence

upper management

level of management that consists of the board of directors and chief executives

charged with providing strategic guidance for the organization