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Chapter 12

Chapter 12. Responsibility Accounting, Quality Control, and Environmental Cost Management. Learning Objective 1. Responsibility Accounting. Responsibility accounting is used to measure the performance of people and departments to foster goal congruence. Learning Objective 2.

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Chapter 12

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  1. Chapter 12 Responsibility Accounting, Quality Control, and Environmental Cost Management

  2. Learning Objective1

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

  4. Learning Objective2

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

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

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

  8. Learning Objective3

  9. 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.

  10. Performance Reports

  11. Learning Objective4

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

  13. 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.

  14. 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.

  15. Controllability InformationversusBlame MotivatingDesiredBehavior Behavioral Effects of Responsibility Accounting

  16. Learning Objective5

  17. 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.

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

  19. Segmented Reporting

  20. Key Features of Segmented Reporting • Contribution format. • Controllable versus uncontrollable expenses. • Segmented income statement.

  21. We can handle that - but we need to quote a price that reflects the value of these services. Let’s see, I need . . . Special credit terms, Small order lots, Special packing, Great field service, and JIT delivery. Customer Profitability Analysisand Activity-Based Costing Company Sales Rep Customer

  22. Learning Objective6

  23. Design Grade Conformance Quality Total Quality Management

  24. Cost of Quality Quality costs include the follows: • Prevention costs, • Appraisal costs, • Internal failure costs, and • External failure costs.

  25. Cost of Quality The opportunity cost of lost sales and decreased market share can represent a significant hidden cost.

  26. Learning Objective7

  27. Changing Views of Optimal Product Quality Costs Traditional View Total quality costs Failure costs Prevention and appraisal costs Percentage of defective products 0% 100% Minimum

  28. Changing Views of Optimal Product Quality Costs Contemporary View Total quality costs Failure costs Prevention and appraisal costs Percentage of defective products 0% 100% Minimum

  29. Identifying Quality Control Problems Poor reception/ static on line Pareto Diagram Too easily moves out of transmission range Power declines too rapidly Faulty casing (easily broken)

  30. ISO 9000 Standards • The International Standards Organization (ISO), require that a manufacturer have a well-defined quality control system in place, and that the target level of product quality be maintained. • Sustain quality of product. • Effective quality control system in place. • Provide purchaser confidence in the product.

  31. Learning Objective8

  32. Environmental Cost Management Private environmental costs are assumed by a company. Social environmental costs are assumed by the public.

  33. Environmental Cost Management Visible private environmental costs are measurable and clearly identified environmental issues. Hidden private environmental costs are caused by environmental issues but have not been so identified by the accounting system.

  34. Environmental Cost Strategies End-of-pipe Process improvement Prevention

  35. End of Chapter 12

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