ACCT1022 Chapter Notes - Chapter 12: Income Statement, Balanced Scorecard, Profit Center

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Chapter Twelve: Responsibility Accounting, Operational Performance Measures, and the
Balanced Scorecard
Responsibility Centers
Goal congruence: results when the managers of subunits through an organization
strive to achieve the goals set by top management
Responsibility accounting: the various concepts and tools used by managers to
measure the performance of people and departments in order to foster goal
congruence
Responsibility center: a subunit in an organization whose manager is held
accountable for specified financial results of the subunit’s activities
oCost center: an organizational subunit whose manager is held accountable
for the costs incurred in the subunit
oRevenue center: held accountable for the revenue generated by the subunit
oProfit center: an organization subunit whose manager is held accountable
for profit; held responsible for both the revenue and expenses attributed to
their subunits
oInvestment center: held accountable for the subunit’s profit and the
invested capital used by the subunit to generate its profit; also decides
whether the profits of the investment center are paid as bonuses,
reinvested in R&D, used for expansion, distributed to shareholders etc.
Performance Reports
Performance reports: shows the budgeted and actual amounts, and the variances
between these amounts
oHelps managers use management by exception to control an
organization’s operations effectively
Budgets, Variances Analysis, and Responsibility Accounting
Flexible budget provides the benchmark against which actual revenues, expenses,
and profit are compared
Performance reports show variances between budgeted and actual performance
Cost Allocation
Cost pool: collection of costs to be assigned
Cost objects: responsibility centers, products, or services to which costs are to be
assigned
Cost allocation/cost distribution: process of assigning the costs in the cost pool to
the cost objects
Cost Allocation Bases
Allocation base: a measure of activity, physical characteristic, or economic
characteristic that is associated with the responsibility centers which are the cost
objects in the allocation process
oAllocation base chosen should reflect some characteristic of the various
responsibility centers that is related to the incurrence of costs
oAlso referred to as a cost driver
Activity Based Responsibility Accounting
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Document Summary

Chapter twelve: responsibility accounting, operational performance measures, and the. Goal congruence: results when the managers of subunits through an organization strive to achieve the goals set by top management. Responsibility accounting: the various concepts and tools used by managers to measure the performance of people and departments in order to foster goal congruence. Performance reports: shows the budgeted and actual amounts, and the variances between these amounts: helps managers use management by exception to control an organization"s operations effectively. Flexible budget provides the benchmark against which actual revenues, expenses, and profit are compared. Performance reports show variances between budgeted and actual performance. Cost pool: collection of costs to be assigned. Cost objects: responsibility centers, products, or services to which costs are to be assigned. Cost allocation/cost distribution: process of assigning the costs in the cost pool to the cost objects. Management"s attention is directed not only to the cost incurred in an activity but also to the activity itself.

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