Chapter 12 - Responsibility accounting, operational performance measures, and the balanced scorecard. After completing this chapter, you should be able to: Explain the role of responsibility accounting in fostering goal congruence, define and give an example of a cost center, a revenue center, a profit center, and an investment center; prepare a performance report and explain the relationships between the performance reports for various responsibility centers,...
Chapter 12 Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard Copyright © 2014 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education McGrawHill/Irwin Responsibility Accounting Responsibility accounting is Responsibility accounting isused usedto tomeasure measurethe the performance performanceof of people peopleand anddepartments departmentsto tofoster foster goal goal congruence congruence 122 Responsibility Centers A A subunit subunitin inan anorganization organizationwhose whosemanager manageris is held heldaccountable accountablefor forspecified specifiedfinancial financial results results 123 Responsibility Centers Cost CostCenter Center S Segment egmenthas has control control over overthe the incurrence incurrenceof of costs costs The Paint Department in an automobile plant Revenue Revenue Center Center Segment Segment is is responsible responsible for for the the revenue revenue of of aa unit unit The Reservations Department of an airline 124 Responsibility Centers Profit ProfitCenter Center Segment Segmenthas hascontrol control over overboth bothcosts costsand and revenues revenues Companyowned restaurant in a fast food chain Investment Investment Center Center Segment Segment has has control control over over profits profits and and invested invested capital capital A division of a large corporation 125 Performance Reports Show the budgeted and actual Show the budgeted and actual amounts, and the variances between amounts, and the variances between these amounts, of key financial these amounts, of key financial results appropriate for the type of results appropriate for the type of responsibility center responsibility center 126 Performance Reports Flexible Budget* February Year to Date Company Maui Division Oahu Division Total profit Oahu Division Waimea Beach Resort Diamond Head Lodge Waikiki Sands Hotel Total profit Waikiki Sands Hotel Grounds and Maintenance Housekeeping and Custodial Recreational Services Hospitality Food and Beverage Total profit Food and Beverage Department Banquets and Catering Restaurants Kitchen Total profit Kitchen Kitchen staff wages Food Paper products Variable overhead Fixed overhead Total expense Actual Results* February Year to Date Variance† February Year to Date $30,660 $18,400 12,260 $30,660 $64,567 $38,620 25,947 $64,567 $30,716 $18,470 12,246 $30,716 $64,570 $38,630 25,940 $64,570 $56 F $70 F 14 U $56 F $3F $10 F 7U $3F $6,050 2,100 4,110 $12,260 $12,700 4,500 8,747 $25,947 $6,060 2,050 4,136 $12,246 $12,740 4,430 8,770 $25,940 $10 F 50 U 26 F $14 U $40 F 70 U 23 F $7U ($45) (40) 40 2,800 1,355 $4,110 ($90) (90) 85 6,000 2,842 $8,747 ($44) (41) 41 2,840 1,340 $4,136 ($90) (90) 88 6,030 2,832 $8,770 $1F 1U 1F 40 F 15 F $26 F — — $3F 30 F 10 U $23 F $600 1,785 (1,030) $1,355 $1,260 3,750 (2,168) $2,842 $605 1,760 (1,025) $1,340 $1,265 3,740 (2,173) $2,832 $5F 25 U 5F $15 U $5F 10 U 5U $10 U ($80) (675) (120) (70) (85) ($1,030) ($168) (1,420) (250) (150) (180) ($2,168) ($78) (678) (115) (71) (83) ($1,025) ($169) (1,421) (248) (154) (181) ($2,173) $2F 3U 5F 1U 2F $5F $1U 1U 2F 4U 1U $5U *Numbers without parentheses denote profit; numbers with parentheses denote expenses; numbers in thousands †F denotes favorable variance; U denotes unfavorable variance 127 Cost Allocation The process of assigning the costs in the cost pool to the cost objects is called cost allocation or cost distribution 128 Cost Allocation Bases An allocation base is 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 129 Activity-Based Responsibility Accounting Traditional responsibility-accounting systems tend to focus on the financial performance measures of cost, revenue, and profit for subunits of the organization Activity-based Activity-based costing costing systems systems associate associate costs costs with with the the activities activities that that drive drive those those costs costs In In activityactivitybased based responsibility responsibility accounting, accounting, attention attention is is directed directed not not only only to to costs costs incurred incurred but but also also to to the the activity activity creating creating the the cost cost 1210 Behavioral Effects of Responsibility Accounting Controllability Information versus Blame Motivating Desired Behavior 1211 Segmented Reporting A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data Segmented reporting refers to the preparation of accounting reports by segment and for the organization as a whole 1212 Segmented Reporting AlohaHotels Hotelsand and Aloha Resorts Resorts MauiDivision Division Maui WaimeaBeach Beach Waimea Resort Resort Divisions • OahuDivision Division Oahu DiamondHead Head Diamond Lodge Lodge WaikikiSands Sands Waikiki Hotel Hotel • Units 1213 Segmented Reporting 1214 Key Features of Segmented Reporting Contribution Contribution format format Controllable Controllable versus versus uncontrollable uncontrollable expenses expenses Segmented Segmented income income statement statement 1215 Customer Profitability Analysis and Activity-Based Costing Let’s see, I need Special credit terms, Small order lots, Special packing, Great field service, and JIT delivery Customer We can handle that - but we need to quote a price that reflects the value of these services Company Sales Rep 1216 Operational Control Measures in Today’s Manufacturing Environment 1217 Operational Performance Measures in Today’s Manufacturing Environment Raw Material & Scrap Control Quality Lead time Cost of scrap Total cost Inventory Control Average value Average holding time Ratio of inventory value to sales revenue 1218 Operational Performance Measures in Today’s Manufacturing Environment Machine Performance Availability Downtime Maintenance records Setup time Product Quality Warranty claims Customer complaints Defective products Cost of rework 1219 Operational Performance Measures in Today’s Manufacturing Environment Production Manufacturing cycle time Velocity Manufacturing cycle efficiency Delivery • % of on-time deliveries • % of orders filled • Delivery cycle time 1220 Operational Performance Measures in Today’s Manufacturing Environment Productivity Aggregate productivity Partial productivity Innovation and Learning Percentage of sales from new products Cost savings from process improvements 1221 Balanced Scorecard The balanced scorecard is a balanced approach to the area of performance evaluation Employees are evaluated on a series of financial and nonfinancial measures in a variety of areas 1222 ... scrap Total cost Inventory Control Average value Average holding time Ratio of inventory value to sales revenue 12? ?18 Operational Performance Measures in Today’s Manufacturing Environment Machine Performance... 12? ?16 Operational Control Measures in Today’s Manufacturing Environment 12? ?17 Operational Performance Measures in Today’s Manufacturing Environment Raw Material & Scrap Control Quality Lead time... savings from process improvements 12? ?21 Balanced Scorecard The balanced scorecard is a balanced approach to the area of performance evaluation Employees are evaluated on a series of financial