PERFORMANCE EVALUATION RESPONSIBILITY ACCOUNTING ~ internat reporting system that Supports decentralization DECENTRALIZATION ~ delegation of authority and responsibility to cupervisors or mid-level management creation 9 divisions or segments CENTRALIZATION ~ leaves decision making 40 few top-level managements ~ Decision is cascaded 1» lower-level management for implementation ~ best for mrier businecs organization ADVANTAGES AND DISADVANTAGES OF DECENTRALIZATION: Serves as moti I foo! decentralization —» lack of coordination “1b ToP-level management can focur on Strategic. leur and werall company —————— can lead to “sub-optimmnation”” concerns hr an ead manage Sea fake et Be et ‘gant aedbee “1 Allows quicker tecponce 40 1 too mich leeway granted t+ lower-level Operational propiems Manage —* losing sight on the “big-picture” 1 training ground for Iwer-level manager i> results 9 “in: ‘eading” snappers wien 0 company ic deere of ea ea or externally ginerated Idea Ieenuae fo mach relia Ter Tew manage Beng Pred top eve! pation SEGMENT REPORTING ~ breaike ent a company’s financial data by company Int, Subcidiaries, OF OHher Kinds of business seqmente Pro-FORMA STATEMENT Total Cegment A Segment B Sales * * * Leas: variable expense! Materials x x Labor x we variable OH ~ oad Selling expences me x” Controutien Margin * ae | —* ranger prtmenance Lee: Fixed expences Fheed OF xe ae Segment margin rc feel PSE [ag et Less: common expence Adminitrative expense x Net operating income ~ GOAL CONGRUENCE AND MoTIVATION Lace OF GOAL CONCRUENCE “GON COMGRUEWGE™ peel in util exe of 5 Gn organization chare ‘he Same goal ses «alignment 0 objectives Stberdonte gan, ree aie!CONTROLLABLE COST —- manegen'pertwrmerce ~ may be directly regulated at a given level of managerial Authority and time-frame vt. > higher auinority, more cantrottable costs {i = Short-1un costs —» ex: variable costs ‘NON-CONTROLLABLE COSTS ~ cannot be altered baed On a personal bucinecr decision or need = allocated by the top management te everal department or branches = can be altered in the tong run egment tellin pete Ieee aels FIXED Coss ——— v5 COMMON FIXED CosT avoidable if 0 Supply + Sausare influenced by Segment managers SCM = Total revenues = Total variable cast Cea tverte & = Yong-run test of profirabitity * considers avoldabre fixed cost = Measuret how much is conbibuied te recover common fixed Cort and company profit [siz scm Idatble Fixed cost Si = Net Operating Income + Common Fixed cost = taoraie Revenue variance analycis Solet Factor Quantity Factor Cot Factor = alee Wie= comparing decired minimum required rate of return (RoR) = measure 4he required invectment fo generate certain amount of prot = Weignted Average Cart of Capital con be the minimum ROR ~ Fhe higher. ee RO! = Dperating Income / Average Investment or Acset “FEB because ites an eset 7 “Ne bind te emo of manage por = Operating Income” Sates ‘Salee “uerage investment or Attth I q Tet of retiy Tet fait PIT-FAULS OF Ol + ROL k easily manipulated + Managers tend 4e reject investments w] lower Rel than his own wut would have mereated the overall company ROI + ROL it stated as a percentage —> meacurement of rate not an abivlute value of money + Inthe alorence OF the balanced tower test feiome Highest[maximnum << Profit tobe carned per unit cold department transfor price — (nv inclading the dransfur price) " = agreed price wlout the baring it on market price = will lower the profit of celing divicion; increase 4he Cott Of the buying alivision Advanta Present the autonomy of the divisions —> Vdecentralization * weanaqent ate iftly t have. much beter Infarmation abent Potential cock and vonefits of the transfer~ feeorded at Varialbte cost, of full cost, or at variable or full cost plus mark up. 4 Transfers at the Cost 40 the Gelling Divicion & Drawbacks: + Wing dull cast as ot transfer price can lead to cubophmization + Selling division will never chow & profit On any intimal transfer * Colh-inased sransfer prices do ne} provide incentives 1 cont costs — Wied when there i o competitive outcide market for tne good Icervice transferred between divicions ~ belt approach = belt if galling dlivicien has ne idle capacity 1D DUAL TRANSFER PRICE - records ont price whereas tre buying divicion ic charged a different price for the same preduct|service = Dicadvantage: difficult 19 moniter NATURE AND PERSPECTIVES OF BALANCED SCORECARDS BALANCED SCORECARD = Concict of integrated ce Of performance measures Anat are derived from and support the company’s strategy = Fromsiates the vicion and crategy Inte operational ebjcctiva and meacures + Spetifies hw an organization matches ite own capabilities > describes how an organivaten can create value for itt custemen whil ‘HS compe tors TWO BASE STRATEGIE: ms ty 49 offer PP ica perceived by its cuctmors 40 be superior and unique relative fo product /services of itz competitors = increasee brand loyally and the willingnece of customer t+ pay higher Pricer differenKating inet from = ability t achieve lower cost: relative te competitor through productivity and efficiency imprvementc, elimination of waste, and fight cost contrat © Competitors - The targer He number competitorc, the lecter the power of a Company @ Polential entrank - the les fime anal money it coits fora mew compester te enter, the more an established companyi pocition could be Cignificantty weakened @® Power of Cuppliew - The fewer the suppliers, the more a company WOuld depend en a Supplier Gs Supplier hat more power @ Bargaining power oF custemert - A smalter and more powcrénl client bace mean that tach cuchwer has more power ty Vegohate truer prices © threat of Subchtuter- when close cubstituter are available, customers will have the option t fargo buying @ company prot and it pewer will be weakenedTHE FOUR PERSPECTIVES OF BALANCED ScoRECARD the financial percpeetive ‘The Customer perspective @ the internat businese Process procpeekive © the learaing and growin (jnfrastrachure) percpretive = Eslablithes the long- and chort-term financial performance objcetves = seen describes the Cwonomic consequences of Achont taken in the Other Hee prespectiver revenue growin pricerecovery Prdchvily ~ quanétafive measurement ~ sowrce of dhe rosenme amponent for fe financial prspective = defines the custmer and market cegments in which tke busines unit will compete and describes the Way that value it created far Customert walitative meaiure ment —= customer feed back Incteate market share Inoreace customer retentic increase owtomer acquici Increaee customer operational prawctvity ‘Output unite input wait > Finacial preductivity = peso ontput/ pero input ~ rmeasures the relation belween ouiput and a SINGLE input = number of value or value of output manufactured inumber of unite OF cast Hf a Cingle or part of the input rexpurce = measuring productivity for ALL inputt oF once = Yatio of tke value Of OWiput t the value of ALL Key inputt = wnit er sates value of output folal cot Of wput reduces 1 Inlernat butinest prcece performance matures a) — fetal elaprea fime between when an ender i placed by a cuctmer and when it i shipped # cutter — part of thi ix wait time + occurs pefsre the order i¢ ploced inte production the vemainder is the throughput Fime ) = fOtal elapced Hime belween when an order it arted Inky pduction and when it ic Chipped 40 the customer i = consits of prcess fime, nupection ime, move Hime, and queue fime ~ rafio of value added time (pricect time) to total throughput time = measure of how much thoughput time acnally addr value Mce Thrwughpat firme Throwghpat Frne, + H MCE <1 = prduction pricess containe “non-value-added” Hime © Reducing the nomvalue added time will lead te impywwement of MCE~ number ef unite Of output that Can be produced in a given peried of fime var chcs “hare” Westy Value-Added Time: Process Time ] wait | proces 4 inspection . move 4 quene Fine, time time Hime "time Non-value- Added Time: Throughout (Wasecting ete) Time | © woit time @ Move time =a Ope Time © inspection time @ Queue, time FINANCIAL PERFORMANCE MEACURES ” ~ measures the change in operating income afributable Solely te the Change in the quantity of output sold. = Measures change in output price compared with changer in input prices # Successful pduct differentiation strategy ——> large positive price-revovery component ¥ T Salling price > Teast = measures the amount by which operating income increaice by wing inputs efficiently 4° lewer cacts ¥ Successful cot kadership Shaieqy ——? large pocitive productivity component 1 production (output) w/ cock input) STRATEGIC ANALYSIS OF OPERATING INCOME ANALYZING CHANGES IN REVENUE TWO COMPONENTS OF REVENUE 4 = Mnanres Hhe change in income Gricing from change in delling price E qpmemesram =! 1 + analyzes the change in income. Orising from the change in number ‘of units this year compared te the prior year Sree = (srry - Spuy) x Soy =(sary- savy)x sPLY SPT = ing eT Ye SOTy = Ges Baan Wi Yar SF: Beka a oe S50) GSS aden La Se Ean) etait ar $90 Sleytr ar onpotcn = S~ STY@LP = STY@LYP - SLY SN Saat tie Yeor SILI © Sata is Year a ast Yeare ice STTELIP » Sais Yea a last Years hice eM? tate tan SoneANALY2ING CHANGES IN COS1— Separate analycis Of variable tnit from fixed coste (within relevant range) Components Total variable Cost this Year 4 ~_ => Productivity Variable Cost this Year ¥ Input This Year @ Last Years Production Ratio al > Price Vorriable Cost Last Year ¥ Input This Year © Lost Year's Production Ratio = “= Growth Total variable cost Last Year Cost effect of PRODWEHUITY, = (Ary - GUY@ s1Y: SLY Ratio) x CTY = Actwal nite of input used te poduce 2oy4 output — Unit of input required to preduce 20x41 output In 20x0 X Input price in 20%4 Cout effect of PRICE RECOVERY = (CTY CLY) X GTY@SIY: Sty Ratio = (input price in 20x1- Mput price in 20xD X Units of input required fo prduce 20%1 output in 20x0 Cost effect of GROWTH = (@LY@ sty:sty Ratio - Guy) x CW = (Unite of input required fo preduce 20x4 output in 20x0 = Actwal unite of input used 9 poduce 2ox0 output) X Input price in 20x0 components Fixed unit this Year : oraneiity Fived Cost Thit Year @ Capacity Lact Year) = [——_ Price Fixed Codd vast Year Cost effect of PRODUCTIVITY (Capacity 1 - Capacity LY) x CY =(Actual woits of capacity in 20x1 ~ Actwal waits of capacity in 20%0) X Price per wnit of capacity in 20x1 Cost tffeet of PRICE = (Coy C1¥) x Capacity taut year “+ (Pri pte wnid of capacity in 20x1 - Price ptr unit of Capacity in 20x0) | X Actual waits of capacity in 20K%0Cott effect of GROWTH & = (capadity LY- Capacity LY) x cur © = (Actual unite of capacity in 20x0~ Actual units of capacity in 20x0) X Price per unit ef capacity in 20x0 BREAFING DOWN THE GROWTH COMPONENT TO MARKET CI2€ AND MARKET CHARE = Growth component x (aty increase in marke Cire = Growth Component - Market che variance ola increase in aty)