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Managerial Accounting – Chapter 9

Balanced scorecard
A system of performance measurement that collects information on several key performance indicators within each of four perspectives: customer, internal processes, innovation and learning, and financial.
Controllable costs
Costs that a manager has the power to control or at least strongly influence.
Cost-based transfer pricing
A form of pricing transfers between divisions of the same company based on costs to the transferring division; typically used when the transferring division has excess capacity.
Cost center
Department that incurs costs but generates no revenues; common example is the accounting or legal department.
Departmental accounting system
Accounting system that provides information useful in evaluating the profitability or cost effectiveness of a department.
Departmental contribution to overhead
Amount by which a department’s revenues exceed its direct expenses.
Direct expenses
Expenses traced to a specific department (object) that are incurred for the sole benefit of that department.
Hurdle rate
Minimum acceptable rate of return (set by management) for an investment.
Indirect expenses
Expenses incurred for the joint benefit of more than one department (or cost object).
Investment center
Center of which a manager is responsible for revenues, costs, and asset investments.
Investment center residual income
The net income an investment center earns above a target return on average invested assets.
Investment center return on total assets
Center net income divided by average total assets for the center.
Investment turnover
The efficiency with which a company generates sales from its available assets; computed as sales divided by average invested assets.
Joint cost
Cost incurred to produce or purchase two or more products at the same time.
Market-based transfer price
The market price of a good or service being transferred between divisions within a company; typically used when the transferring division does not have excess capacity.
Negotiated transfer price
A price, determined by negotiation between division managers, to record transfers between divisions; typically lies between the variable cost and the market price of the item transferred.
Profit center
Business unit that incurs costs and generates revenues.
Profit margin
Ratio of a company’s net income to its net sales; the percent of income in each dollar of revenue; also called net profit margin.
Responsibility accounting budget
Report of expected costs and expenses under a manager’s control.
Responsibility accounting performance report
Responsibility report that compares actual costs and expenses for a department with budgeted amounts.
Responsibility accounting system
System that provides information that management can use to evaluate the performance of a department’s manager.
Transfer price
The price used to record transfers of goods or services between divisions in the same company.
Uncontrollable costs
Costs that a manager does not have the power to determine or strongly influence.

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