ACCT 2230 Lecture Notes - Lecture 9: Income Statement, Ob River, Fixed Cost

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Bene ts: authority to make decisions = job satisfaction. Disadvantages: may be lack of coordination among so many managers, may be dif cult to spread innovative ideas in organization lower-level managers may make rash decisions lower-level managers objectives may not be same as organization. Segment reporting: when manager reports details on cost, revenue or pro t data of segment : contribution approach does not comply with gaap some managers will chose individual store, sales territory, service centre etc. to use absorption approach. Segment margin = contribution margin - traceable fixed costs. Investment centres (manager has control over costs, revenues & investments in operating assets. Average operating assets (cash, a/r, inventory, plant etc. ) (income before interest/tax) Gross cost: nbv consistent with plant/equipment on balance sheet, consistent with calculation of operating income (including depreciation, gross cost eliminates age of equipment, does not discourage replacement of old, worn-out equipment, most companies use nbv. Roi = operating income / average operating assets.

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