管理会计英文课件：ch11 Financial Control

1、 2012 Pearson Prentice Hall. All rights reserved.Chapter 111 2012 Pearson Prentice Hall. All rights reserved.lFinancial control involves the use of financial measures to assess organization and management performanceThe focus of attention could be a product, a product line, an organization departmen

2、t, a division, or the entire organizationlFinancial control provides a counterpoint to the Balanced Scorecard view that links financial results to its presumed driversFocuses only on financial results2 2012 Pearson Prentice Hall. All rights reserved.lOrganizations have developed and exploited financ

3、ial measures to assess performance and target areas for improvement because external stakeholders have traditionally relied on financial performance measures to assess organization potential3 2012 Pearson Prentice Hall. All rights reserved.lFinancial measures do not identify what is wrong, but they

4、do provide a signal that something is wrong and needs attention4 2012 Pearson Prentice Hall. All rights reserved.lThis chapter focuses on broader issues in financial control, including the evaluation of organization units and of the entire organizationlManagers use and consider:Internal financial co

5、ntrolslInformation used internally and not distributed to outsidersExternal financial controlslDeveloped by outside analysts to assess organization performance5 2012 Pearson Prentice Hall. All rights reserved.lDecentralization is the process of delegating decision-making authority to frontline decis

6、ion makerslHighly centralized organizations tend not to respond effectively or quickly to their environments6 2012 Pearson Prentice Hall. All rights reserved.lCentralization is best suited to organizations that:Are well adapted to stable environmentsHave no major information differences between the

7、corporate headquarters and the employeesHave no changes in the organizations environment that require adaptation by the organization7 2012 Pearson Prentice Hall. All rights reserved.lIn centralized organizations:Technology and customer requirements are well understoodThe product line consists mostly

8、 of commodity products for which the most important attributes are price and quality8 2012 Pearson Prentice Hall. All rights reserved.lTo accomplish this, organizations develop standard operating procedures to ensure that:They are using the most efficient technologies and practices to promote both l

9、ow cost and consistent qualityThere are no deviations from the preferred way of doing things9 2012 Pearson Prentice Hall. All rights reserved.lIn response to increasing competitive pressures and the opening up of former monopolies to competition, many organizations are changing the way they are orga

10、nized and the way they do businesslThis is necessary because they must be able to change quickly in a world where technology, customer tastes, and competitors strategies are constantly changing 10 2012 Pearson Prentice Hall. All rights reserved.lBeing adaptive generally requires that the organizatio

11、ns senior management delegate or decentralize decision-making responsibility to more people in the organizationlDecentralization:Allows motivated and well-trained organization members to identify changing customer tastes quicklyGives front-line employees the authority and responsibility to develop p

12、lans to react to these changes11 2012 Pearson Prentice Hall. All rights reserved.lThe amount of decentralization reflects the organizations need to have people on the front lines who can make good decisions quickly and:The organizations trust in its employeesThe employees level of skill and training

13、The employees ability to make the right choices12 2012 Pearson Prentice Hall. All rights reserved.lIn decentralization, control moves from task control to results controlFrom where people are told what to doTo where people are told to use their skill, knowledge, and creativity to achieve organizatio

14、n objectives13 2012 Pearson Prentice Hall. All rights reserved.lA responsibility center is an organization unit for which a manager is held accountablelA responsibility center is like a small businesslBut it is not completely autonomousIts manager is asked to run that small business to achieve the o

15、bjectives of the larger organization14 2012 Pearson Prentice Hall. All rights reserved.lThe manager and supervisor establish goals for their responsibility centerlThese goals should:Be specific and measurable so as to provide employees with focusPromote the long-term interests of the larger organiza

16、tion Promote the coordination of each responsibility centers activities with the efforts of all the others15 2012 Pearson Prentice Hall. All rights reserved.lFor an organization to be successful, the activities of its responsibility units must be coordinatedlSales, manufacturing, and customer servic

17、e activities are often very disjointed in large organizations, resulting in diminished performanceIn general, nonfinancial performance measures detect coordination problems better than financial measures16 2012 Pearson Prentice Hall. All rights reserved.lOrganizations use financial control to provid

18、e a summary measure of how well their systems of operations control are workinglWhen organizations use a single index to provide a broad assessment of operations, they frequently use a financial number because these are measures that their shareholders use to evaluate the companys overall performanc

19、e17 2012 Pearson Prentice Hall. All rights reserved.lThe accounting report prepared for a responsibility center reflects the degree to which the responsibility center manager controls revenue, cost, profit, or return on investmentlFour types of responsibility centers:lCost centerslRevenue centerslPr

20、ofit centerslInvestment centers18 2012 Pearson Prentice Hall. All rights reserved.lA responsibility center in which employees control costs but do not control revenues or investment levellOrganizations evaluate the performance of cost center employees by comparing the centers actual costs with budge

21、ted cost levels for the amount and type of work done19 2012 Pearson Prentice Hall. All rights reserved.lMany organizations make the mistake of evaluating a cost center solely on cost controllOther critical performance measures may include:QualityResponse timeMeeting production schedulesEmployee moti

22、vationEmployee safetyRespect for the organizations ethical and environmental commitments20 2012 Pearson Prentice Hall. All rights reserved.lIf management evaluates cost center performance only on the centers ability to control costs, its members may ignore unmeasured attributes of performance21 2012

23、 Pearson Prentice Hall. All rights reserved.lA responsibility center whose members control revenues but do not control either the manufacturing or acquisition cost of the product or service they sell or the level of investment made in the responsibility centerlSome revenue centers control price, the

24、 mix of stock on hand, and promotional activities22 2012 Pearson Prentice Hall. All rights reserved.lMost revenue centers incur sales and marketing costs and have varying degrees of control over those costslIt is common in such situations to deduct the responsibility centers traceable costs from its

25、 sales revenue to compute the centers net revenueTraceable costs may include salaries, advertising costs, and selling costs23 2012 Pearson Prentice Hall. All rights reserved.lCritics of the revenue center approach argue that basing performance evaluation on revenues can create undesirable consequenc

26、eslIn general, focusing only on revenues causes organization members to increase the use of activities that create costs in order to promote higher revenue levels24 2012 Pearson Prentice Hall. All rights reserved.lA responsibility center where managers and other employees control both the revenues a

27、nd the costs of the products or services they deliverlA profit center is like an independent business, except that senior management, not the responsibility center manager, controls the level of investment in the responsibility centerlMost units of chain operations are treated as profit centers25 20

28、12 Pearson Prentice Hall. All rights reserved.lIt is doubtful that a unit of a corporate-owned hotel or fast-food restaurant meets the conditions to be treated as a profit centerlThese units are sufficiently large that:Costs may vary due to differences in controlling labor costs, food waste, and sch

29、eduled hoursRevenues may also shift significantly based on how well staff manages the property26 2012 Pearson Prentice Hall. All rights reserved.lAlthough these organizations do not seem to be candidates to be treated as profit centers, local discretion often affects revenues and costs enough so tha

30、t they can be lMany organizations evaluate units as profit centers even though the corporate office controls many facets of their operationsThe profit reported by these units reflects both corporate and local decisions27 2012 Pearson Prentice Hall. All rights reserved.lIf unit performance is poor, i

31、t may reflect:Poor conditions no one in the organization can controlPoor corporate decisionsPoor local decisionslOrganizations should not rely solely on profit centers financial results for performance evaluationsDetailed performance evaluations should include quality, material use, labor use, and s

32、ervice measures that the local units can control28 2012 Pearson Prentice Hall. All rights reserved.lA responsibility center in which the manager and other employees control revenues, costs, and the level of investment in the responsibility centerlFor example, General Electric has diverse business un

33、itsIncluding Energy, Technology Infrastructure, GE Capital, Home & Business Solutions, and NBC UniversallSenior executives at General Electric developed a management system that evaluated these businesses as independent operationsin effect as investment centers 29 2012 Pearson Prentice Hall. All rig

34、hts reserved.lUnderlying the accounting classifications of responsibility centers is the concept of controllabilitylThe Controllability Principle states that the manager of a responsibility center should be held responsible only for the revenues, costs, or investment that responsibility center perso

35、nnel control30 2012 Pearson Prentice Hall. All rights reserved.lRevenues, costs, or investments that people outside the responsibility center control should be excluded from the accounting assessment of that centers performancelAlthough the controllability principle sounds appealing and fair, it can

36、 be difficult, misleading, and undesirable to apply in practice 31 2012 Pearson Prentice Hall. All rights reserved.lA significant problem in applying the controllability principle is that in most organizations many revenues and costs are jointly earned or incurredThe activities that create the final

37、 product are sequential and highly interdependentEvaluating the individual performance of one center requires the firm to consider many facets of performance32 2012 Pearson Prentice Hall. All rights reserved.lAs part of the performance evaluation process, the organization may want to prepare account

38、ing summaries of the performance of individual units to support some system of financial control33 2012 Pearson Prentice Hall. All rights reserved.lThe choice of the performance measure should influence decision-making behaviorlWhen more costs or even revenues are included in performance measures, m

39、anagers are more motivated to find actions that can influence incurred costs or generated revenues34 2012 Pearson Prentice Hall. All rights reserved.lDespite the problems of responsibility center accounting, the profit measure is so comprehensive and pervasive that organizations prefer to treat many

40、 of their organization units as profit centerslBecause most organizations are integrated operations, the first problem designers of profit center accounting systems must confront is the interactions between the various profit center units35 2012 Pearson Prentice Hall. All rights reserved.lA common f

41、orm of the Segment Margin Report for an organization that is divided into responsibility centers includes one column for each profit centerlRows include:RevenueVariable costsContribution marginOther costs not proportional to volumeSegment margin36 2012 Pearson Prentice Hall. All rights reserved.lAll

42、ocated avoidable costs are deducted from the units segment margin to compute its incomelThe organizations unallocated costs, which represent the administrative and overhead costs incurred regardless of the scale of operations, are deducted from the total of the profit center incomes to arrive at tot

43、al profit 37 2012 Pearson Prentice Hall. All rights reserved.lWhat can we learn from the segment margin report?lThe contribution margin for each responsibility center is the value added by the manufacturing or service-creating process before considering costs that are not proportional to volumelA un

44、its segment margin is an estimate of the long-term effect of the responsibility centers shutdown on the organization after fixed capacity is redeployed or sold off38 2012 Pearson Prentice Hall. All rights reserved.lThe units income is the long-term effect on corporate income after corporate-level fi

45、xed capacity is allowed to adjustlThe difference between the units segment margin and income reflects the effect of adjusting for business-sustaining costs39 2012 Pearson Prentice Hall. All rights reserved.lOrganizations use different approaches to evaluate whether the segment margin numbers are goo

46、d or badlTwo sources of comparative information are:Past performanceComparable organizationslEvaluations include comparisons of:Absolute amountsRelative amounts40 2012 Pearson Prentice Hall. All rights reserved.lSegment margin reports may reflect many assumptions that disguise underlying issuesSegme

47、nt margins present an aggregated summary of each organization units past performancelImportant to consider critical success factors that will affect future profitsSegment margin reports usually contain “soft numbers”lAllocations that may be quite arbitrary and over which there can be legitimate disa

48、greementlRevenue figures reflect important assumptions and allocations that can be misleading41 2012 Pearson Prentice Hall. All rights reserved.lTransfer pricing is the set of rules an organization uses to allocate jointly earned revenue among responsibility centerslTo understand the issues and prob

49、lems associated with allocating revenues in a simple organization, consider the activities that occur when a customer purchases a new car at a dealership:42 2012 Pearson Prentice Hall. All rights reserved.The new car department sells the new car and takes in a used car as a tradeThe used car is tran

50、sferred to the used car departmentThere, it may undergo repairs and service to make it ready for sale, or may be sold externally on the wholesale marketlThe value placed on the used car transferred between the new and used car departments is critical in determining the profits of both departments:43

51、 2012 Pearson Prentice Hall. All rights reserved.The new car department would like the value assigned to the used car to be as high as possible to increase revenueThe used car department would like the value to be as low as possible because that makes its reported costs lowerlThe same considerations

52、 apply for any product or service transfer between any two departments in the same organization44 2012 Pearson Prentice Hall. All rights reserved.lOrganizations choose among four main approaches to transfer pricing:Market-based transfer pricesCost-based transfer pricesNegotiated transfer pricesAdmin

53、istered transfer priceslTransfer prices serve different purposes; however, the goal of using transfer prices is always to motivate the decision maker to act in the organizations best interests45 2012 Pearson Prentice Hall. All rights reserved.lIf external markets exist for the intermediate (transfer

54、red) product or service, then market prices are the most appropriate basis for pricing the transferred good or service between responsibility centerslThe market price provides an independent valuation of the transferred product or service, and of how much each profit center has contributed to the to

55、tal profit earned by the organization on the transaction46 2012 Pearson Prentice Hall. All rights reserved.lSome common cost-based transfer prices are:Variable costVariable cost plus a percent markup on variable costFull costFull cost plus a percent markup on full costlEconomists argue that any cost

56、-based transfer price other than marginal cost leads organization members to choose a lower than optimal level of transactions47 2012 Pearson Prentice Hall. All rights reserved.lCost-based approaches to transfer pricing do not support the intention of having the transfer pricing mechanism support th

57、e calculation of unit incomeslTransfer prices based on actual costs provide no incentive to the supplying division to control costs, because the supplier can always recover its costs48 2012 Pearson Prentice Hall. All rights reserved.lCost-based pricing does not provide the proper economic guidance w

58、hen operations are capacity constrainedProduction decisions near full capacity should reflect the most profitable use of the capacity, not only cost considerationsThe transfer price should be the sum of the marginal cost and the opportunity cost of capacity, where opportunity cost reflects the profi

59、t of the best alternative use of the capacity49 2012 Pearson Prentice Hall. All rights reserved.lSome organizations allow supplying and receiving responsibility centers to negotiate transfer prices between themselveslNegotiated transfer prices reflect the controllability perspective inherent in resp

60、onsibility centers, because each division is ultimately responsible for the transfer price that it negotiatesNegotiated transfer prices and therefore production decisions may reflect the relative negotiating skills of the two parties rather than economic considerations50 2012 Pearson Prentice Hall.