1、 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Chapter 13: Responsibility Accounting, S
2、upport Department Allocations, and Transfer Pricing, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for cla
3、ssroom use.,Learning Objectives,Which factors determine whether a firm should be decentralized or centralized? How are decentralization and responsibility accounting related? What are the four primary types of responsibility centers, and what distinguishes them from each other? How are revenue varia
4、nces computed? Why and how are support department costs allocated to operating departments? What types of transfer prices are used in organizations, and why are such prices used? What difficulties can be encountered by multinational companies using transfer prices?, 2011 Cengage Learning. All Rights
5、 Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Organizational Structure,Centralization Top management retains the major p
6、ortion of authority,Decentralization Top management delegates decision-making authority to subunit managers, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or serv
7、ice or otherwise on a password-protected website for classroom use.,Decentralization Continuum (slide 1 of 2),Age of firm Young Mature Size of firm Small Large Stage of product development Stable Growth Growth rate Slow Rapid Impact on profits of incorrect decisions High Low Managementsconfidence in
8、 subordinates Low High Degree of control Tight Moderate/loose,Factor Centralized Decentralized, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherw
9、ise on a password-protected website for classroom use.,Geographicdiversity Local Widespread Cost of communications Low High Ability to resolveconflicts Easy Difficult Level of employeemotivation Low Moderate to high Level of organizational flexibility Low High Response time tochanges Slow Rapid,Fact
10、or Centralized Decentralized,Decentralization Continuum (slide 2 of 2), 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protec
11、ted website for classroom use.,Advantages and Disadvantages of Decentralization,Advantages Personnel Train and screen aspiring managers Develop leadership qualities, problem-solving abilities, and decision-making skills Compare managers results Increase job satisfaction and job enrichment Effective
12、means of achieving organizational goals Reduces decision-making time Allows management by exception,Disadvantages Lack of goal congruence Suboptimization Pursuing the subunit managers goals instead of the companys goals Requires more effective communication skills Managers must relinquish control Ex
13、pensive Train managers in decision-making skills Absorb cost of poor decisions Requires a sophisticated planning and reporting system, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with
14、 a certain product or service or otherwise on a password-protected website for classroom use.,Responsibility Accounting,Reporting system Provides information about subunits Allows management to measure subunit performance Consistent with Standard costing Activity-based costing Monetary and nonmoneta
15、ry Adjusted for the planning, controlling, and decision-making needs of each unit manager Separates costs as controllable or noncontrollable by the unit manager,Managers delegate decision-making authority but retain responsibility for outcomes., 2011 Cengage Learning. All Rights Reserved. May not be
16、 copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Responsibility Report, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned,
17、or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Nonmonetary Measures,Capacity measures Target ROI Desired/actual market share Throughput Defects Backorders Compl
18、aints On-time delivery Manufacturing cycle efficiency,Reduction of non-value-added time Employee suggestions received/implemented Unplanned production interruptions Schedule changes Engineering changes Safety violations Absenteeism, 2011 Cengage Learning. All Rights Reserved. May not be copied, scan
19、ned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Control Process Steps,Prepare a plan using budgets and standards and use it to communicate output expectatio
20、ns and delegate authority Use responsibility accounting system to record and summarize data for each organizational unit Monitor the differences between planned and actual data at scheduled intervals Exert influence in response to significant differences Continue comparing data and responding and th
21、en begin the process again, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Responsibilit
22、y Reporting,Upward flow of information From operations to top management Unit level reports are detailed Upper-level reports are summarized Encourages management by exception Major deviations are highlighted, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in w
23、hole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Responsibility Reporting System, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or
24、in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Disadvantages of Responsibility Accounting,Disadvantages of responsibility accounting include Important details may not be visible at upper
25、management levels Managers might “promote” their unit while “blaming” their competitor units Departmental interdependencies might not be visible, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distr
26、ibuted with a certain product or service or otherwise on a password-protected website for classroom use.,Responsibility Centers,Responsibility accounting systems identify, measure, and report on activities in responsibility centers Cost center Revenue center Profit center Investment center, 2011 Cen
27、gage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Cost Centers,Authority to incur costs Evaluated o
28、n how well costs are controlled Revenues Do not exist Example: equipment maintenance center Exist but are not under managers control Example: community libraries Exist but cannot be measured Example: R&D center Focus on variances outside acceptable range, 2011 Cengage Learning. All Rights Reserved.
29、May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Revenue Centers,Responsible for generating revenue No control of selling price or cos
30、ts Example: Individual sales departments in retail stores Revenue and Limited Cost Center Some involvement in planning and controlling costs, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distribut
31、ed with a certain product or service or otherwise on a password-protected website for classroom use.,Profit Centers,Responsible for generating revenuesset selling prices Responsible for controlling expensesallowed to purchase at most economical price Goal is to maximize the centers profit Independen
32、t units Examples: Bank branches Educational divisions 18-wheelers Evaluate on profit variance, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwi
33、se on a password-protected website for classroom use.,Investment Centers,Responsible for generating revenues and planning and controlling expenses Responsible for plant assets Goal is maximize rate of return on assets Evaluate on rate of return on assets and other performance measures Example: Divis
34、ions or subsidiaries, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Responsibility Cent
35、ers,To control cost center performance, management may: Assign costs incurred in cost centers to revenue-producing areas through service department cost allocation “Create” revenue through a system of internal charges (charge-backs) for the centers tangible or intangible output used by other company
36、 units, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Service Department Cost Allocatio
37、n,Service departments provide functional tasks for other internal units Purchasing Maintenance Engineering Security Warehousing,Administrative departments provide management activities for the organization Human resources Accounting Legal Insurance, 2011 Cengage Learning. All Rights Reserved. May no
38、t be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Allocating Service Costs: Full Cost Objective,Reasons for: Cost recovery Awareness of suppo
39、rt costs “Fair share” of costs Regulations for some pricing instances,Reasons against: Managers cannot control costs Arbitrary costs not useful in decision making Confuses costing and pricing issues, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or i
40、n part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Allocating Service Costs: Motivation for Managers Objective,Reasons for: Awareness of support costs in production managers Relates units prof
41、it to total company profits Reflects usage of services Encourages cost control Encourages usage of certain services,Reasons against: Distorts profits with subjective allocations Managers cannot control costs Not material to profits Creates interdivisional ill will Not cost beneficial, 2011 Cengage L
42、earning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Allocating Service Costs: Compare Alternate Courses of
43、Action Objective,Reasons for: Relevant information helps compare alternatives Provides best cost estimates when comparing alternatives,Reasons against: Unnecessary if costs do not change among alternatives Arbitrary allocations distort cash flow and profits for alternatives, 2011 Cengage Learning. A
44、ll Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Allocation Bases for Service Department Costs,Rational and system
45、atic base Benefit received by revenue-producing department Causal relationship Fairness or equity of the allocations Ability of revenue-producing department to bear the allocated cost Methods Direct method Step method Benefits-provided ranking Algebraic method Simultaneous equations, 2011 Cengage Le
46、arning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Service,Revenue,1 2 A B C,Assigns costs straight to reve
47、nue-producing areas,Does not recognize service provided to other service departments,Direct Method, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or ot
48、herwise on a password-protected website for classroom use.,Service,Revenue,1 2 A B C,Partially recognizes relationships among service departments,Does not recognize the two-way exchange of services between service departments,Service Method, 2011 Cengage Learning. All Rights Reserved. May not be cop
49、ied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,Service,Revenue,1 2 A B C,At the same time,Recognizes all interrelationships among departments,Prov
50、ides the best allocation information,Algebraic Method, 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.,
