ADMS 2510 Lecture Notes - Statistical Process Control, Accounts Receivable, International Organization For Standardization
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Decentralized organization: An organization in which decision making is spread throughout the organization
rather than being confined to a few top executives
A segment is defined as a part or activity of an organization about which managers would like cost, revenue, or
A segment is defined as a part or activity of an organization about which managers would like cost,
revenue, or profit data.
Traceable fixed costs: Fixed costs that can be identified with a particular segment and that arise because of
the existence of the segment.
Common fixed cost: A fixed cost that supports the operations of more than one segment but is not traceable
in whole or in part to any one segment.
traceable fixed costs are charged to the segments, but common fixed costs are not.
In preparing segmented income statements, some managers like to separate the traceable fixed costs
into two classes—discretionary and committed.
The amount remaining after deducting the discretionary fixed costs, sometimes called a segment
Segment margin: A segment margin is obtained by deducting a segment's traceable fixed costs from the
segment's contribution margin.
Responsibility centre: Any business segment whose manager has control over cost or profit or the use of
Cost centre: A business segment whose manager has control over cost but has no control over revenue or the
use of investment funds.
Profit centre: A business segment whose manager has control over cost and revenue but has no control over
the use of investment funds.
Investment centre: A business segment whose manager has control over cost and revenue and also has
control over the use of investment funds.
Transfer price: The price charged when one division or segment provides goods or services to another division
or segment of an organization.
Suboptimization: An overall level of profitability that is less than a segment or a company is capable of
Negotiated transfer price: A transfer price agreed on between buying and selling divisions.
Range of acceptable transfer prices: The range of transfer prices within which the profits of both the selling
division and the purchasing division would increase as a result of a transfer.
Selling division with idle capacity:
Transfer price ≥ Variable cost per unit
Selling division with no idle capacity:
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