Question

Chapter 24: performance measurements and responsibilty accounting.

In your own words, discuss in detail all the financial performance evaluation measures that are mentioned in the chapter and how to calculate each of them.

Answer 1

Performance measurements and responsibilty accounting:

Financial performance evaluation measures	Details
Decentralized organizations	Organization in which decision-making authority is held by the managers who are closest to the operating activities.
Cost Center	The business segment that incurs costs but that does not directly generates revenue.
Profit Center	A responsibility center that incurs costs and also generates revenues.
Investment Center	A business segment whose manager has control over cost, revenue, and investments in operating assets.
Responsibility Accounting System	a system for evaluating the performance of each responsibility center and its manager
Controllable Costs	costs that a manager has the power to control or at least strongly influence
Uncontrollable Costs	Costs that a manager does not have the power to determine or strongly influence.
Responsibility Accounting Budgets	Budget that uses the concept of controllable costs to assign managers the responsibility for costs and expenses under their control
Responsibility Accounting Performance Report	System that reports actual expenses that a manager is responsible for and their budgeted amounts.
departmental contribution to overhead	Report of Sales less Direct Expenses
Return on investment	A measure of the profitability of a project or investment.
Residual income	The net operating income that an investment center earns above the minimum required return on its operating assets.
Profit Margin	Measure of income earned per dollar of sales. Net income/sales
Investment turnover	Measure of how efficiently an investment center generates sales from its invested assets.
Balanced Scorecard	a performance measurement tool that looks at more than just the financial perspective