1. Responsibility Accounting, Operational Performance Measures, and the Balanced Scorecard Chapter 12 McGraw-Hill/Irwin Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. Responsibility Accounting Responsibility accounting is used to measure the performance of people and departments to foster goal congruence. 12-2

3. Responsibility Centers A subunit in an organization whose manager is held accountable for specified financial results. 12-3

4. Responsibility Centers Cost Center S egment has control over the incurrence of costs. Cost Center S egment has control over the incurrence of costs. The Paint Department in an automobile plant. Revenue Center Segment is responsible for the revenue of a unit. Revenue Center Segment is responsible for the revenue of a unit. The Reservations Department of an airline. 12-4

5. Responsibility Centers Profit Center Segment has control over both costs and revenues. Profit Center Segment has control over both costs and revenues. Company-owned restaurant in a fast-food chain. Investment Center Segment has control over profits and invested capital. Investment Center Segment has control over profits and invested capital. A division of a large corporation. 12-5

6. Performance Reports Show the budgeted and actual amounts, and the variances between these amounts, of key financial results appropriate for the type of responsibility center. 12-6

7. Performance Reports 12-7

8. Cost Allocation The process of assigning the costs in the cost pool to the cost objects is called cost allocation or cost distribution. 12-8

9. 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. 12-9

10. 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 costing systems associate costs with the activities that drive those costs. In activity- based responsibility accounting, attention is directed not only to costs incurred but also to the activity creating the cost. 12-10

11. Behavioral Effects of Responsibility Accounting Information versus Blame Controllability Motivating Desired Behavior 12-11

12. Segmented Reporting Segmented reporting refers to the preparation of accounting reports by segment and for the organization as a whole. A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. 12-12

13. Segmented Reporting Divisions Units Aloha Hotels and Resorts Oahu Division Maui Division Waikiki Sands Hotel Diamond Head Lodge Waimea Beach Resort 12-13

14. Segmented Reporting 12-14

15. Key Features of Segmented Reporting  Contribution format.  Controllable versus uncontrollable expenses.  Segmented income statement.  Contribution format.  Controllable versus uncontrollable expenses.  Segmented income statement. 12-15

16. 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. We can handle that - but we need to quote a price that reflects the value of these services. Company Sales Rep Customer 12-16

17. Operational Control Measures in Today’s Manufacturing Environment 12-17

18. Operational Performance Measures in Today’s Manufacturing Environment Raw Material & Scrap Control l Quality l Lead time l Cost of scrap l Total cost Inventory Control l Average value l Average holding time l Ratio of inventory value to sales revenue 12-18

19. Operational Performance Measures in Today’s Manufacturing Environment Machine Performance l Availability l Downtime l Maintenance records l Setup time Product Quality l Warranty claims l Customer complaints l Defective products l Cost of rework 12-19

20. 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 12-20

21. Operational Performance Measures in Today’s Manufacturing Environment Productivity l Aggregate productivity l Partial productivity Innovation and Learning l Percentage of sales from new products l Cost savings from process improvements 12-21

22. 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. 12-22