Textbook Notes (368,401)
Canada (161,862)
Accounting (248)
ACCT 2230 (113)
Chapter 11

Chapter 11 Managerial Accounting Notes

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ACCT 2230
Elliot Currie

Chapter 11 Accounting SummaryAccounting for ControlDecentralization in OrganizationsDecentralized organization An organization in which decisionmaking is spread throughout the organization rather than being confined to a few top executives All large organizations are decentralized to some extent Effective decentralization requires segment reporting to permit analysis and evaluation of the decisions made by segment managers Reports are needed for individual segments of the organizationCost Profit and Investment CentresResponsibility Centre a broadly defined as any part of the organization whose manager has control over and is accountable for cost profits and investment 3 primary types are cost centre profit centres and investment centresCost Centrebusiness segment whose manager has control over costs but not over revenue or investment funds Eg Departments such as accounting finance general administration legal etc Manager might be evaluated by comparing actual costs to how much costs should have been for the actual number of units produced during a period Eg Standard cost varianceProfit Centre is any business segment whose manager has control over both cost and revenue Often evaluated by comparing actual profit to target profitInvestment Centre any segment of the organization whose manager has control over the cost revenue and investments in operating assetsManagers usually evaluated using return on investment or residual income measuresTransfer PricingTransfer Price The price charged when one divisionsegment provides goods and services to another divisionsegment of an organization Doesnt have effect on entire companys reported profit only on each involved division3 Approaches to set transfer prices1 Allow involved managers to set own transfer prices2 Set transfer prices at cost using either variable cost or full absorption cost3 Set transfer prices at market priceSuboptimization occurs when managers dont act in the best interests of the overall company or even in best interest of own segmentNegotiated Transfer PricesNegotiated transfer price A transfer price agreed on between buying and selling divisions This approach preserves the autonomy of the division The selling division will usually only agree to transfer if profits of selling division increase bc of transfer For any proposed transfer the transfer price has a lower limit determined by selling division and an upper limit determined by buying divisionRange of acceptable transfer prices The range of transfer prices within which profits of both selling division and purchasing division would increase as a result of the transferSellers PerspectiveTransfer PriceVariable Cost per unit Total contribution margin of lost salesNumber of Units TransferredPurchasers PerspectiveTransfer PriceCost of Buying from Outside SupplierTransfer to the Selling Division at CostMany companies set transfer prices at either the variable cost or full absorption cost incurred by selling division Can lead to Suboptimization
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