ACC 117 Lecture Notes - Lecture 3: Kaizen, Fixed Cost, Economic Value Added

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9 Jun 2020
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Short term: firms use budget variances to measure cost centres performance, operating budgets specify the resources needed to achieve a targeted level. Initiative to reward employees who strive for this: this can be achieved through permanent cost reduction. Discretionary cost centres: above measures were for engineered cost centres (where there is a clear relation between inputs and outputs, discretionary cost centres (managed by managers) output is harder to measure. Firms often use profit before taxes to evaluate profit centres. Profit bt = contribution margin traceable fixed costs: contribution margin = revenue variable costs. Budgets also provide a natural benchmark for profit and cost centres. To measure manager"s ability: measure ability to meet long term goals, revenue oriented measures: customer satisfaction and market share, cost oriented measures: employee turnover or number of process improvements. Three popular measures are: residual income, economic value added and .

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