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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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    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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    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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    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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    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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    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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    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