ACIS Exam Study Guide: Decentralized Organization, Financial Analysis, and Ratios - Prof. , Study notes of Financial Accounting

Download ACIS Exam Study Guide: Decentralized Organization, Financial Analysis, and Ratios - Prof. and more Study notes Financial Accounting in PDF only on Docsity! ACIS FINAL EXAM STUDY GUIDE: 1 Chapter 11:  Decentralized organization - o Decision making is spread throughout levels: managers at various levels make important decisions relating to their area of responsibility  Benefit : o Top management can focus on long-term strategy o Lower levels gain experience, satisfied in job, aware of problems, quicker decisions  Disadvantages : o Lower-levels focus on own section, not the big picture, not adequately trained in beginning o May not act in best interest of whole company, only their specific division (hard to communicate throughout whole company)  Responsibility accounting : o Managers held responsible for their control  Cost center - only dealing with costs, evaluated how well costs are controlled  Ex. manufacturer, facility, service department (purchasing, accounting, general admin., Finance, legal, personnel department)  Revenue center - only deal with revenue  Ex. sales department  Profit center - control over costs and revenue  Ex. store, hotel manager, product manager  No control over investment  Investment center - same as profit and investment control, SBU (strategic business unit)  Division or group within a larger company, CEO, operations VP  Segment reporting - manager seeks to control cost, revenue, profit through data  Traceable FC - directly allocate to segment. If segment were to be eliminated, FC would disappear  Common FC - would not disappear if segment gone (company president)  TFC vs. CFC- not always blacks and white  Segment margin= CM –TFC o Best gauge of long-run profit in a segment  CM-TFC= Division / (segment margin) – CFC= NI  TFC can become CFC if division broken down further ( look at specific division and their product lines)  CFC : o Cannot assign to particular segment, cannot allocate costs, if company dropped, total CFC would still remain  May show a segment to appear unprofitable, but actually are  Forces managers to be held accountable for costs that they cannot control  Return on investment (ROI )= Net operating income Average operatingassets o Net operating before interest and taxes o Operating assets- cash; AR, property/ equipment, inventory  Increase ROI : o Increase sales o Reduce operating costs: either fixed or variable o Reduce operating assets: through inventory  ROI= Margin x Turnover o Margin = (net operating income) / sales ACIS FINAL EXAM STUDY GUIDE: 2 o Turnover= sales / (average operating assets) o WANT HIGHER NUMBERS o Criticisms of ROI -  Managers often inherit many committed costs over which they have no control  Mangers are evaluated on the ROI which may be rejected as profitable investment opportunities.  Residual income = Net operating income – (Average assets x minimum return rate)  ROI vs. Residual income = o ROI shows decrease with investments, even if investment is good for company o Residual income encourages managers to make profitable investments that would be rejected by managers being evaluated under ROI  Disadvantages of residual income - o Cannot compare across division of different sizes  Use ROI to compare divisions of different sizes  Balanced score card : focus on customer, internal business perspective and learning and growth o Uses financial and non-financial performance measures  Non-financial measure - o Vital to success, but don’t measure with dollar sign: shows problems before sales decline o Customer satisfaction, product and service quality, productivity, efficiency, timeliness  Customer : o Meeting/ exceeding expectations o Measures of performance-  Number complaints, warranty claims, returns, on-time delivery, repeat business, response time  Increase market share, expansion= market share, saturation, loyalty o Highly market saturation=hard to sell  Internal business - o Improve operations that add value to goods and services including research and development, production, and customer service o Productivity - measure the relationship between out and inputs: how much output per input HIGH: (how many loaves of bread backed per bag of flour. Cars per labor hour) o Cycle time - time it takes to produce a defect-free product: how long to finish unit LOW  Value-added= making product  Non-value= waiting time to be manufactured (minimize) o Throughput - how many defective free units in period o A company that is highly productive would have a low cycle time and high throughput o Cycle efficiency - value-added time in production process  Increasing improves customer response time and decreases non-value added activities  Learning and growth - o How well do we manage employees  Efficient/effective use (increase employee morale, skill development, employee turnover...) o Increase information system capabilities: availability of information o Product innovation : increase number of new products and patents  Quality costs - (investment more upfront to reduce further processing costs) o Prevention costs - prevent product failure, early in chain (designing, engineering, training, supervision, quality improvements) o Appraisal (detection) costs - catching problems, inspecting, testing, statistical process control