Term
| types of responsibility centers |
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Definition
revenue
expense
profit
investment |
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Term
| what is a responsibility center? |
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Definition
| a segment of the organization that is headed by a manager who is responsible for its activities. |
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Term
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Definition
output is measured in monetary terms.
no formal attempt is made to relate input to output.
performance is measured by comparing actual sales to budgeted sales or quotas. |
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Term
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Definition
inputs are measured in monetary terms.
outputs are not measured.
two types: engineered and discretionary. |
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Term
| engineered expense center |
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Definition
there is a known input-to-output relationship (like direct materials).
input can be measured in monetary terms.
output can be measured in physical terms.
optimal amount of input for a unit of output is determinable. |
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Term
| discretionary expense center (3 types) |
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Definition
administrative support (least challenging to control)
R&D (most challenging to control)
marketing (order-filling and order-getting)
often called managed costs; HR, acct'ng, add. education |
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Term
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Definition
| generated profit is evaluated against the assets required to generate that profit. |
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Term
| relationship between inputs and outputs |
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Definition
causal and direct in some centers.
inputs are not always directly related to outputs. |
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Term
| measuring inputs and outputs |
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Definition
inputs are the resources that responsibility centers use to accomplish objectives.
it is much easier to calculate the value of inputs than of outputs. |
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Term
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Definition
| the ratio of outputs to inputs, or the amount of input per unit of input. |
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Term
| how is efficiency measured in many responsibility centers? why is that method flawed? |
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Definition
his is measured by comparing actual costs with some standard of what those costs should have been at the measured output.
2 flaws:
recorded costs are not precise measures of the resources actually consumed.
the standard is an approximation based on ideal circumstances. |
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Term
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Definition
determined by the relationship between a responsibility center's output and its objectives.
the more this output contributes to the objectives, the more effective the unit.
often expressed in subjective, nonanalytical terms. |
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Term
| effectiveness and efficiency are not mutually exclusive; what determines if each is accomplished? |
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Definition
| a responsibility center is efficient if it does things right and it is effective if it does the right things. |
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Term
| budget preparation for engineered expense centers |
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Definition
management decides whether the proposed operating budget represents the unit cost of performing its task efficiently.
volume is not a major concern; the actions of other responsibility centers is a major determinant. |
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Term
| 2 categories of work performed by discretionary expense centers |
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Definition
continuing work: done consistently from year to year.
special work: "one shot" projects. |
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Term
| budgetary preparation methods for discretionary expense centers |
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Definition
incremental budgeting
zero-base review
(management by objectives is usually used in doing this) |
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Term
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Definition
the current level of expenses is used as a starting point. it is adjusted based on inflation and changes in workload.
2 drawbacks:
1. current expenditures aren't reevaluated.
2. additional resource requests cause overhead creep. |
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Term
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Definition
thorough analysis of each discretionary expense center on a rolling schedule (5 years or so).
drawbacks:
1. time consuming.
2. often traumatic for managers. |
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Term
| other terms for zero-base review |
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Definition
downsizing
rightsizing
restructuring
process reengineering |
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Term
| financial control in engineered expense centers |
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Definition
| the objective is to become competitive by setting a standard and measuring actual costs against this standard. |
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Term
| financial control in discretionary expense centers |
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Definition
the main purpose of the budget is to control costs by allowing manager to:
- help with planning
- discuss the tasks to undertake
- determine the appropriate level of effort for each task |
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Term
| what is the biggest difference in planning for engineered and discretionary expense centers? |
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Definition
| timing. financial control for discretionary expense centers is primarily exercised at the planning stage; in engineered expense centers, control is ongoing. |
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Term
| control challenges with administrative & support centers |
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Definition
difficultly in measuring output.
lack of goal congruence (different definitions of "excellence"). |
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Term
| control challenges with administrative & support centers |
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Definition
difficultly in measuring output.
lack of goal congruence (different definitions of "excellence"). |
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Term
| control challenges with R&D centers |
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Definition
difficulty in relating outputs to inputs.
lack of goal congruence.
lack of interest/knowledge by engineers in the business side (no motivation to monitor costs). |
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Term
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Definition
logistics (order-filling)
revenue generating
(true) marketing activities (order-getting) |
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Term
| logistics marketing activities |
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Definition
order getting.
develop standard costs to compare performance to. |
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Term
| revenue generating marketing activities |
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Definition
| compare actual revenue generated to a budgeted amount of revenue (target) |
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Term
| true marketing activities |
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Definition
order-getting.
evaluation becomes subjective and depends largely on judgement. |
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