Performance Measurement and Responsibility Accounting

Flashcards focused on key vocabulary and concepts from the Performance Measurement and Responsibility Accounting chapter.

Performance Evaluation

The process of assessing the efficiency and effectiveness of a company's divisions or departments.

Decentralized Organizations

Organizations that delegate decision-making responsibilities to individual unit managers.

Cost Center

A unit evaluated on its ability to control actual versus budgeted costs.

Profit Center

A unit evaluated on its ability to generate income.

Investment Center

A unit evaluated on its ability to generate income and manage its assets.

Controllable Costs

Costs that a manager can influence or control.

Uncontrollable Costs

Costs that are not within the manager's control or influence.

Responsibility Accounting

An accounting system that measures the performance of different departments and managers.

Direct Expenses

Costs that can be directly traced to a specific department.

Indirect Expenses

Costs incurred for the joint benefit of multiple departments that cannot be directly traced to one department.

Service Department Costs

Expenses incurred by service departments that benefit multiple other departments.

Cost Allocation

The process of distributing indirect costs among different departments.

Investment Center Manager

A manager responsible for revenues, costs, and investment in operating assets.

Transfer Price

The price charged for goods transferred between divisions of the same company.

Market-Based Transfer Price

A transfer price that reflects the market value of goods.

Cost-Based Transfer Pricing

Transfer pricing based on the costs incurred by the selling department.

Negotiated Transfer Price

A transfer price agreed upon through negotiation, often between variable cost and market price.

Joint Costs

Costs incurred for the production of two or more products simultaneously.

Allocation of Joint Costs

The process of distributing joint costs across different products based on certain criteria.

Value Basis Allocation

Allocating joint costs based on the sales value of products at the split-off point.

Controllability Principle

The concept that managers should only be held accountable for costs and revenues that they can influence.

Budgetary Control

The use of budgets to control an organization's finances.

Performance Reports

Reports designed to show the performance of departments against budgeted targets.

Operational Efficiency

The ability of an organization to deliver products or services in the most cost-effective manner.

Departmentalized Structure

An organizational structure in which the company is divided into various departments based on functions.

Revenue Accountability

The responsibility of managers to ensure that revenues are maximized in their departments.