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Test 3: Chapter 11
Accounting Test 3 Flashcards
21
Accounting
Undergraduate 2
04/23/2012

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Term
Decentralized Organizations
Definition
does not confine decision-making authority to a few top executives; rather, decision making authority is spread throughout the organization.
Term
Responsibility Act System
Definition
links lower-level managers decision making authority with accountability fot the outcomes of those decision.
Term
Responsibility Center
Definition
any part of an organization whose manager has control over, and is accountable for cost, profit, or investments.
Term
Cost Center
Definition
Manager has control over cost, but not revenue or investment
Term
Profit Center
Definition
manager has control of costs and revenue
Term
Investment Center
Definition
Manager controls cost, revenue, and investment
Term
Return on Investment (ROI)
Definition
net operating income / average operating assets
Term
Net Operating Income
Definition
income before taxes.
Term
Operating Assets
Definition
cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes.
Term
Residual Income
Definition
net operating income that an investment center earns above the minimum required return on its assets. Encourages managers to make investments that are profitable for the entire company but would be rejected by managers using the ROI approach.
Term
Delivery Cycle Time
Definition
elapsed time from when a customer order is received to when the completed order is shipped
Term
Throughput Time
Definition
turning raw materials into completed products. process time, inspection time, move time, and queue time. Process time is the only value added activity.
Term
Manufacturing Cycle Efficiency (MCE)
Definition
value added time / throughput time
Term
Balanced Scorecard
Definition
consistes of an integrated set of performance measures that are derived from and support a company's strategy. measures included are unique to each company. Broken into four groups: financial, customer, internal business process, and learning and growth. It stresses learning so that business practices improve and help financial growth.
Term
Balanced Scorecard: Relying on Non-Financial Measures
Definition
1. Financial measures are lag indicators that summarize the results of past actions. Non-Financial measures are leading indicators of future financial performance
2. Top managers are ordinarily responsible for financial performance measures, not lower level managers. non-financial measures are more likely to be understood and controlled by lower level managers.
Term
Transfer Price
Definition
the price charged when one segment of a company provides goods or services to another segment of the company. Have no direct effect on the entire company's reported profit, but can have a dramatic effect on the reported profitability of a division. Best interests of company
Term
Suboptimization
Definition
occurs when managers do not act in the best interest of the over all company or even their own divisions
Term
Negotiated Transfer Price
Definition
1. Preserves the anatomy of the divisions, which is consistent with the spirit of decentralization.
2. The manager has greater knowledge of the transfer price and potential costs and benefits.
Term
Lower limit
Definition
determined by the selling division
Term
Upper Limit
Definition
determined by the buying division
Term
Market Price
Definition
the price charged for a product on the open market. This is often regarded as the best approach to the transfer pricing problem
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