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Acct 202H Chapter 10

Balanced Scorecard
A performance evaluation system that integrates financial and operational performance measures along four perspectives:
Financial, Customer, Internal Business, Learning and Growth
Capital Turnover
Sales revenue divided by total assets. Shows how much sales revenue is generated with every $1 of assets

Sales / Total assets

Common Fixed Expenditures
Fixed expenses that cannot be traced to the segment
Cost Center
A responsibility center in which managers are responsible for controlling costs
Decentralize
A process where companies split their operations into different operating segments
Direct Fixed Expenses
Fixed expenses that can be traced to the segment
Favorable Variance
A variance that causes operating income to be higher than budgeted
Flexible Budget
A summarized budget prepared for different levels of volume
Flexible Budget Variance
The difference between the flexible budget and actual results. Variances are due to something other than volume
Goal Congruence
When the goals of the segment managers align with the goals of top managment
Gross Book Value
Historical cost of assets
Investment Center
A responsibility center in which managers are responsible for generating revenues, controlling costs, and managing the division’s assets.
Key Performance Indicators
Summary performance metrics used to assess how well a company is achieving its goals
Lag Indicators
Performances indicators that reveal the results of past actions and decisions
Lead Indicators
Performance measures that predict future performance
Management by Exception
A management technique in which managers only investigate budget variances that are relatively large
Master Budget Variance
The difference between actual results and the master budget
Net Book Value
Historical cost of assets less accumulated depreciation
Performance Reports
Reports that compare actual results against budgeted figures
Performance Scorecard or Dasboard
A report displaying the measurement of KPIs, as well as their short-term and long-term targets
Profit Center
A responsibility center in which managers are responsible for both revenues and costs, and therefore profits
Residual Income
Operating income minus the minimum acceptable operating income given the size of the division’s assets.

RI = Operating income – (Total Assets X Target Rate of Return)

Responsibility Accounting
A system for evaluating the performance of each responsibility center and its manager
Responsibility Center
A part of an organization whose manager is accountable for planning and controlling certain activities
1. Cost
2. Revenue
3. Profit
4. Investment
Return on Investment
Operating income divided by total assets. Measures the profitability of a division relative to the size of its assets.

ROI = Operating Income/Total Assets

Expanded

ROI = (Operating Income/Sales) X (Sales/Total Assets)

Revenue Center
A responsibility center in which managers are responsible for generating revenue
Sales Margin
Operating income divided by sales revenue. Shows how much income is generated for every $1 of assets
Segment Margin
The operating income generated by a profit or investment center before subtracting the common fixed costs that have been allocated to the center
Transfer Price
The price charged for the internal sale of product between two different divisions of the same company
Unfavorable Variance
A variance that causes operating income to be lower than budgeted
Variance
The difference between an actual amount and the budget
Vertical Integration
The acquisition of companies within one’s supply chain
Volume Variance
The difference between the master budget and the flexible budget. Arises only because the actual sales volume differs from the volume originally anticipated in the master budget
How Companies Decentralize
Geographic area, product line, and customer base
Advantages/Disadvantages of Decentralization
Use of expert knowledge, improved customer relations, frees top management’s time______
Achieves goal congruence_______
Investment Center
A large corporate division
C. Favorable Variances are variances that cause operating income to be higher than budgeted
Which of the following is true:
a. Favorable variances should always be interpreted as “good news” for the company
b. Unfavorable variances should always be interpreted as “bad news” for the company
c. Favorable variances are variances that cause operating income to be higher than budgeted
d. Management by exception means that mangers investigate all unfavorable variances but not all favorable variances
…Only direct fixed expenses from a segment’s contribution margin
A segment margin is the operating income generated by subtracting…
Using the price set by GAAP
Not a valid strategy for determining a transfer price
b. The volume variance is due to causes other than volume
Which of the following is false?
a. The difference between actual results and the master budget is called the master budget variance
b. The volume variance is due to causes other than volume
c. The flexible budget is prepared using the actual volume achieved during the period
d. The master budget variance can be split into two components: a volume variance and flexible budget variance
Internal Business
Number of new products developed is a KPI for which perspective?
Learning and Growth
Hours of employee training would be a KPI for which perspective?

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