Management Control Systems and Responsibility Accounting Chapter 9

Learning Objective 1 Describe the relationship of management control systems to organizational goals. © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 -2

Management Control Systems This is a logical integration of techniques for gathering and using information. Planning and control Motivating Evaluating © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 -3

The Management Control System 1. Set goals, measures, targets 2. Plan and execute Feedback and learning 4. Evaluate, reward 3. Monitor, report © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 -4

Correspondence between goals and performance measures Organization goals Performance measures Exceed guest expectations Satisfaction index Number of repeat stays Maximize revenue yield Occupancy rate入住率 Average room rate Income before fixed costs Focus on innovation New products per year Number of employee suggestions Set quantifiable targets for each performance measure © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 -5

Learning Objective 4 Use responsibility accounting to define an organizational subunit as a certain responsibility center. © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 -6

Identifying Responsibility Centers 责任中心 A responsibility center责任中心is a set of activities assigned to a manager, a group of managers, or other employees. System designers apply responsibility Accounting责任会计 to identify what part of the organization has responsibility for each action. © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 -7

Identifying Responsibility Centers Cost centers成本责任中心 -responsibility for cost only Profit centers利润责任中心 -responsibility for revenue and cost Investment centers投资责任中心 -adds responsibility for investment to profit-center responsibilities © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 -8

Contribution Margin method and Segment reports Segments分部 are responsibility centers for which a company develops separate measures of revenues and costs. Combine the Contribution margin approach for segment reports分部报告, using responsibility accounting Controllable costs and Uncontrollable costs © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 -9

Controllability and Measurement of Financial Performance Controllable costs可控成本 include all costs that a manager’s decision and actions can influence, to some extent. An uncontrollable cost不可控成本 is any cost that cannot be affected by the management of a responsibility center within a given time span. © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 - 10

Exercises: Wal-mart store Classify each of the following as (1)variable cost; (2)fixed cost controllable by store manager; (3)fixed cost uncontrolled by store manager; (4)unallocated cost A. B. C. D. E. F. G. H. Property taxes Supervision of local sales staff Deprecation of store Cost of goods sold Local store advertising Corporate level public relations Temporary sales labor © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 - 11

Retail Grocery Company Total East division West division 4, 000 3, 260 1, 500 2, 500 1, 200 2, 060 740 260 480 300 440 100 200 160 280 (6) Fixed cost controllable by others 200 (7) Contribution to profit by segment 110 170 (8) Unallocated costs 280 100 90 110 (9) Before tax profit 180 (1)Net sales (2)Variable cost (3) Contribution margin (4) Fixed cost controllable by segment (5) Contribution to profit controllable by segment Controllable FC: usually discretionary FC; Uncontrollable FC: usually committed FC. © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 - 12

Retail Grocery Company Breakdown of West Division Not allocated Grocery Produce Meats Net sales - 1, 300 900 Variable cost - 1, 100 240 720 Contribution margin - 200 60 180 Fixed cost controllable by segment 20 40 10 90 Contribution to profit controllable by segment (20) 160 50 90 Fixed cost controllable by others 20 40 10 40 Contribution to profit by segment (40) 120 40 50 © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 - 13

Retail Grocery Company (continued) Breakdown of West Division, Meats Not allocated Store 1 Store 2 - 600 300 485 235 30 (30) 115 65 35 80 25 40 Fixed cost controllable by others 10 Contribution to profit by segment (40) 22 58 8 32 Net sales Variable cost Contribution margin Fixed cost controllable by segment Contribution to profit controllable by segment © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 - 14

Contribution Margin The contribution margin is especially helpful for predicting the impact on income of short-run changes in activity volume. Managers may quickly calculate any expected changes in income by multiplying increases in dollar sales by the contribution margin ratio. © 2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton 9 - 15