1、2 4-1PowerPoint Authors:Susan Coomer Galbreath,Ph.D.,CPACharles W.Caldwell,D.B.A.,CMAJon A.Booker,Ph.D.,CPA,CIACynthia J.Rooney,Ph.D.,CPACopyright 2013 by The McGraw-Hill Companies,Inc.All rights reserved.Chapter 24Performance Measurement and Responsibility Accounting2 4-2Provide informationfor mana
2、gers to usein performanceevaluation.Assign costs tomanagers who areresponsible forcontrolling the costs.Responsibility Accounting2 4-3 Large complex businesses are divided into departments enabling managers to have a smaller effective span of control.Motivation forDepartmentalizationProductionSalesS
3、erviceDepartments are established for specialized functions.2 4-4Departmental Evaluation The accounting system provides information about resources used and outputs achieved.Managers use this information to control operations,appraise performance,allocate resources,and plan strategy.The type of acco
4、unting information provided depends on whether the department is a.Evaluated on ability tocontrol costs.CostcenterEvaluated on abilityto generate revenuesin excess of expenses.ProfitcenterEvaluated on abilityto generate return on investment in assets.Investmentcenter2 4-5Controllable versusUncontrol
5、lable CostsA cost is controllable if a manager has the power to determine or at least significantly affect the amount incurred.Uncontrollable costsare not within the managers control or influence.2 4-6An accounting system thatprovides information.Responsibility Accounting SystemRelating to therespon
6、sibilities ofindividual managers.To evaluatemanagers oncontrollable items.P12 4-7Responsibility Accounting Successful implementation of responsibility accounting may use organization charts with clear lines of authority and clearly defined levels of responsibility.Vice Presidentof FinanceDepartment
7、ManagerStore ManagerVice Presidentof OperationsVice Presidentof MarketingPresidentBoard of DirectorsP12 4-8Amount of detail varies according to the level in the organization.A department manager receives detailed reports.A store manager receives summarized information from each department.Responsibi
8、lity AccountingPerformance ReportsP12 4-9 To be of maximum benefit,responsibility reports should.Be timely.Be issued regularly.Be understandable.Compare budgetedand actual amounts.Responsibility AccountingPerformance ReportsP12 4-10P12 4-11 Direct expenses are incurred for the sole benefit of a spec
9、ific department.Indirect expenses benefit more than one department and are allocated among departments benefited.Direct and Indirect ExpensesC12 4-12SquarePercentTotalAllocatedDepartmentFeetof TotalCostCostJewelry2,400 60%300$=180$Watch repair600 15%300 =45 China and silver1,000 25%300 =75 Total4,00
10、0 100%300$Illustration of IndirectExpense Allocation Classic Jewelry pays its janitorial service$300 per month to clean its store.Management allocates this cost to its three departments according to the floor space each occupies.C 12 4-13Allocation of Indirect ExpensesIndirect expenses can be alloca
11、ted to departmentsusing a number of allocation bases.Some common indirectexpenses and their allocation bases are:P 22 4-14 Service department costs are shared,indirect expenses that support the activities of two or more production departments.Service Department ExpensesP 22 4-15Departmental Income S
12、tatementsP 3Lets prepare departmental income statements using the following steps:1.Accumulating revenues and direct expenses by department.2.Allocating indirect expenses across departments.3.Allocating service department expenses to operating departments.4.Preparing departmental income statements.2
13、 4-16Revenues and/or Direct expenses are tracedto each department without allocation.Departmental Income Statements Step 1P 3Operating Dept.OneOperating Dept.TwoRevenues and Direct ExpensesRevenues and Direct ExpensesDirect ExpensesDirect ExpensesService Dept.OneService Dept.Two2 4-17Indirect expens
14、es are allocated to all departmentsusing appropriate allocation bases.AllocationAllocationAllocationAllocationP 3Departmental Income Statements Step 2Service Dept.OneService Dept.TwoOperating Dept.OneOperating Dept.Two2 4-18Operating Dept.OneOperating Dept.TwoService department total expenses(origin
15、al direct expenses+allocated indirect expenses)areallocated to operating departments.AllocationAllocationP 3Service Dept.OneService Dept.TwoDepartmental Income Statements Step 22 4-19Departmental ExpenseAllocation SpreadsheetExpense Allocation to DepartmentsService ServiceSalesSalesAllocation Total
16、Dept.Dept.Dept.Dept.BaseExpenseOneTwoOneTwoDirect expenses SalariesPayroll20,000$1,000$2,000$6,000$11,000$SuppliesRequisitions1,500 100 300 400 700 Step 1:Direct expenses are traced to service departments and sales departments without allocation.P 32 4-20Departmental ExpenseAllocation SpreadsheetExp
17、ense Allocation to DepartmentsService ServiceSalesSalesAllocation Total Dept.Dept.Dept.Dept.BaseExpenseOneTwoOneTwoDirect expenses SalariesPayroll20,000$1,000$2,000$6,000$11,000$SuppliesRequisitions1,500 100 300 400 700 Indirect expenses RentFloor space10,000 1,000 1,000 3,000 5,000 UtilitiesFloor s
18、pace1,000 100 100 300 500 Total dept.expenses32,500$2,200$3,400$9,700$17,200$Step 2:Indirect expenses are allocated to both the service and the sales departments based on floor space occupied.Of a total of 2,000 square feet,the service departments occupy 200 square feet each,sales department one occ
19、upies 600 square feet,and sales department two occupies 1,000 square feet.P 32 4-21Sales department one has$40,000 in sales and sales department two has$48,000 in sales.Step 3:Service department total expenses(original direct expenses+allocated indirect expenses)are allocated to sales departments.De
20、partmental ExpenseAllocation SpreadsheetP 32 4-22Departmental ExpenseAllocation SpreadsheetExpense Allocation to DepartmentsService ServiceSalesSalesAllocation Total Dept.Dept.Dept.Dept.BaseExpenseOneTwoOneTwoDirect expenses SalariesPayroll20,000$1,000$2,000$6,000$11,000$SuppliesRequisitions1,500 10
21、0 300 400 700 Indirect expenses RentFloor space10,000 1,000 1,000 3,000 5,000 UtilitiesFloor space1,000 100 100 300 500 Total dept.expenses32,500$2,200$3,400$9,700$17,200$Service dept.expenses Service Dept.OneSales(2,200)1,000 1,200 Service Dept.TwoEmployees(3,400)1,400 2,000 Total expenses32,500$0$
22、012,100$20,400$Sales department one has 28 employees and sales department two has 40 employees.Step 3:Service department total expenses(original direct expenses+allocated indirect expenses)are allocated to sales departments.P 32 4-23DepartmentalIncome StatementsSalesSalesCombined Dept.One Dept.TwoSa
23、les88,000$40,000$48,000$Cost of goods sold38,000 20,000 18,000 Gross profit on sales50,000$20,000$30,000$Operating expenses Salaries17,000$6,000$11,000$Supplies1,100 400 700 Rent8,000 3,000 5,000 Utilities800 300 500 Service Department One2,200 1,000 1,200 Service Department Two3,400 1,400 2,000 Tot
24、al operating expenses32,500$12,100$20,400$Net income17,500$7,900$9,600$P 32 4-24 Departmental contribution.Is used to evaluate departmental performance.Is not a function of arbitrary allocations of indirect expenses.Departmental revenue Direct expenses =Departmental contributionDepartmental Contribu
25、tionto OverheadA department may be a candidate for elimination when its departmental contribution is negative.P 32 4-25SalesSalesCombined Dept.One Dept.TwoSales88,000$40,000$48,000$Cost of goods sold38,000 20,000 18,000 Gross profit on sales50,000$20,000$30,000$Direct expenses Salaries17,000$6,000$1
26、1,000$Supplies1,100 400 700 Total direct expenses18,100$6,400$11,700$Departmental Contribution 31,900$13,600$18,300$Indirect expenses Rent8,000 Utilities800 Service Department One2,200 Service Department Two3,400 Total indirect expenses14,400$Net Income17,500$Departmental Contributionto OverheadNet
27、income for the company is still$17,500.Departmental contributions to indirect expenses(overhead)are emphasized.Departmental contributions are positive so neither department is a candidate for elimination.P 32 4-26Investment Center Returnon Assets Invested(ROI)ROI =Investment Center Net IncomeInvestm
28、ent Center Average Invested AssetsLCD Division earned more dollars of income,but it was lessefficient in using its assets to generate income comparedto S-Phone Division.A 12 4-27ResidualIncomeInvestment CenterNet IncomeTarget InvestmentCenter Net Income=Investment CenterResidual Income The target ne
29、t income is 8%of divisional assets.A 12 4-28Investment Center Profit Marginand Investment TurnoverA 2Return oninvestment(ROI)=ProfitMarginInvestmentturnoverInvestment center salesInvestment center average assetsInvestment center net incomeInvestment center salesDomestic ROI=20.59%International ROI=1
30、.01%2 4-29Innovation and LearningHow can we continuallyimprove and create value?Internal Business ProcessesIn which activities must we excel?Balanced ScorecardPerformance MeasuresFinancial PerspectiveHow do we lookto the firms owners?Customer PerspectiveHow do our customers see us?A 32 4-30Global Vi
31、ew2 4-31Process time is the only value-added time.Process Time+Inspection Time+Move Time+Wait Time Order ReceivedProductionStartedGoods ShippedManufacturing Cycle TimeCycle Time and Cycle EfficiencyA 4Total Time2 4-32ManufacturingCycleEfficiency Value-added timeManufacturing cycle time=Cycle Time an
32、d Cycle EfficiencyProcess Time+Inspection Time+Move Time+Wait Time Order ReceivedProductionStartedGoods ShippedManufacturing Cycle TimeTotal TimeA 42 4-33A transfer price is the amount charged when onedivision sells goods or services to another division.LCD DisplaysLCD DivisionS-Phone Division Appen
33、dix 24A:Transfer PricingS-Phone can purchase displays for$80 from other companies.C 22 4-34Appendix 24A:Transfer PricingLCD is producing and selling 100,000 units to outside customers.(No excess capacity)Transfer price=$80With no excess capacity,the LCD manager will not accept a transfer price less
34、than$80 per monitor.The S-Phone manager cannot buy monitors for less than$80 from outside suppliers,so the$80 price is acceptable.LCD DisplaysLCD DivisionS-Phone Division C 22 4-35Appendix 24A:Transfer PricingTransfer price=$40 to$80LCD DisplaysLCD DivisionS-Phone Division LCD is producing and selli
35、ng less than100,000 units to outside customers.(Excess capacity)At a transfer price greater than$40,the LCD division receives contribution margin.At a transfer price less than$80,the S-Phone manager is pleased to buy from LCD,since that price is below the market price of$80.C 22 4-36Appendix 24B:Joi
36、nt costsand Their AllocationJoint costs are costs incurred to produce or purchase two or more products at the same time.Consider a sawmill company:How should the joint costs be allocated to the different products?C 32 4-37Appendix 24B:Joint costsand Their AllocationPhysical Basis Allocation of Joint Cost10,000 100,000=10%10%of$30,000=$3,000C 32 4-38Appendix 24B:Joint costsand Their AllocationValue Basis Allocation of Joint Cost$12,000$50,000=24%24%of$30,000=$7,200C 32 4-39End of Chapter 24
