ACCT 2102 Chapter Notes - Chapter 12: Profit Center, Weighted Arithmetic Mean, Nopat
2 May 2016
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Chapter 12- performance evolution in decentralized firms + ethics. Ideally, we want to evaluate controllable performance: reward/punish managers for the consequences of their actions (i. e. , their effort), but not for factors outside their control. E. g. , a marketing manager does not control production => should not be held accountable for lost sales due to production screw-ups. Often, use multiple performance measures to better separate manager"s effort from noise in the outcome. The most informative measures are often based on relative performance: It depends on what the manager of this unit is responsible for (i. e. , what exactly is manager"s controllable performance). 3 types of responsibility centers within the firm: Cost center: controls costs, but not revenues or investments e. g. , production plant, human resources, general administration goal: to minimize costs (costs of producing a given level of output or providing a given level of service)
