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Transcript of Chap012 7e Edited
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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Chapter 12Chapter 12
ResponsibilityAccounting, Quality
Control, andEnvironmental Cost
Management
ResponsibilityAccounting, Quality
Control, andEnvironmental Cost
Management
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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
LearningObjective
1
LearningObjective
1
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Responsibility AccountingResponsibility Accounting
Responsibility accounting is used to measurethe performance of people and departments
to foster goal congruence.
Responsibility accounting is used to measurethe performance of people and departments
to foster goal congruence.
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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
LearningObjective
2
LearningObjective
2
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Responsibility CentersResponsibility Centers
A subunit in an organization whose
manager is held accountable for
specified financial results.
A subunit in an organization whose
manager is held accountable for
specified financial results.
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Responsibility CentersResponsibility Centers
Cost Center
Segment hascontrol over
the incurrenceof costs.
Cost Center
Segment hascontrol over
the incurrenceof costs.
The Paint DepartmentThe Paint Departmentin an automobile plant.in an automobile plant.
Revenue Center
Segment
is responsiblefor the revenue of
a unit.
The ReservationsThe ReservationsDepartment of an airline.Department of an airline.
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Responsibility CentersResponsibility Centers
Profit Center
Segment has
control over
both costs and
revenues.
Profit Center
Segment has
control over
both costs and
revenues.
CompanyCompany--owned restaurantowned restaurant
in a fastin a fast--food chain.food chain.
Investment Center
Segment has
control over profitsand invested
capital.
A division of aA division of a
large corporation.large corporation.
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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
L
earningObjective
3
L
earningObjective
3
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Performance ReportsPerformance Reports
Show the budgeted and actualamounts, and the variances
between these amounts, of key
financial results appropriate forthe type of responsibility center.
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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
L
earningObjective
4
L
earningObjective
4
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Cost AllocationCost Allocation
The process of assigning the costs in the cost pool
to the cost objects is called cost allocation orcost
distribution.
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Cost Allocation BasesCost Allocation Bases
An allocation base is
a measure of activity,
physical
characteristic, oreconomic
characteristic that is
associated with the
responsibility centers,
which are the cost
objects in the
allocation process.
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ActivityActivity--Based ResponsibilityBased Responsibility
AccountingAccounting
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 costswith 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.
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Behavioral Effects ofBehavioral Effects of
Responsibility AccountingResponsibility Accounting
InformationversusBlame
Controllability
MotivatingDesiredBehavior
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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Learning
Objective
5
Learning
Objective
5
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Segmented ReportingSegmented Reporting
Segmented reporting refers to
the preparation of accountingreports 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.
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Segmented ReportingSegmented Reporting
DivisionsDivisions
Units
Aloha Hotels and
Resorts
Oahu DivisionMaui Division
Waikiki Sands HotelDiamond Head
Lodge
Waimea Beach
Resort
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Segmented ReportingSegmented Reporting
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Key Features of SegmentedKey Features of Segmented
ReportingReporting
Contribution format.
Controllable versus uncontrollable expenses.Segmented income statement.
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Customer Profitability AnalysisCustomer Profitability Analysis
and Activityand Activity--Based CostingBased Costing
Lets 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 valueof these services.
CompanyCompany
Sales RepSales RepCustomerCustomer
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Cost of QualityCost of Quality
The opportunitycost of lost
sales and
decreased
market sharecan represent a
significant
hidden cost.
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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Learning
Objective
7
Learning
Objective
7
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Changing Views of OptimalChanging Views of Optimal
Product QualityProduct Quality
Total
qualitycosts
Failure costs
Prevention and
appraisal costs
Minimum
0%
Costs
100%
Percentage
of defective
products
Traditional View
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Changing Views of OptimalChanging Views of Optimal
Product QualityProduct QualityCosts
0%
Minimum
100%
Percentage
of defective
products
Failure costs
Prevention andappraisal costs
Total
quality
costs
Contemporary View
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Identifying Quality Control ProblemsIdentifying Quality Control Problems
9
8
y e of rodu t defe t
Poor re e tion/
stati on line
oo easily
moves out of
transmission
range
Power
de lines too
ra idlyFaulty asing
(easily broken)
Pareto Diagram
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ISO 000 StandardsISO 000 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.Sustain quality of product.
Effective quality control system in place.Effective quality control system in place.
Provide purchaser confidence in the product.Provide purchaser confidence in the product.
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Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Learning
Objective
Learning
Objective
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Environmental Cost ManagementEnvironmental Cost Management
Private environmental
costs are assumed by
a company.
Social environmentalcosts are assumed by
the public.
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Environmental Cost ManagementEnvironmental Cost Management
Visible private environmental
costs are measurable and
clearly identified
environmental issues. Hidden privateenvironmental costs are
caused by
environmental issues
but have not been soidentified by the
accounting system.
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End of Chapter 12End of Chapter 12