TAILIEUCHUNG - Lecture Managerial accounting: Creating value in a dynamic business environment (9/e): Chapter 13 - Ronald W. Hilton

Chapter 13 - Investment centers and transfer pricing. After completing this chapter, you should be able to: Explain the role of managerial accounting in achieving goal congruence; compute an investment center’s return on investment (ROI), residual income (RI), and economic value added (EVA); explain how a manager can improve ROI by increasing either the sales margin or capital turnover. | Investment Centers and Transfer Pricing Chapter 13 Decision Making is pushed down. Delegation of Decision Making (Decentralization) Decentralization often occurs as organizations continue to grow. Learning Objective 1 Decentralization Advantages Allows organization to respond more quickly to events. Frees top management from day-to-day operating activities. Uses specialized knowledge and skills of managers. Decentralization Challenge Goal Congruence: Managers of the subunits make decisions that achieve top-management goals. Measuring Performance in Investment Centers Investment Center managers make decisions that affect both profit and invested capital. Corporate Headquarters Investment Center Evaluation Return on investment, residual income, or economic value added Learning Objective 2 Return on Investment (ROI) ROI = Income Invested Capital ROI = Income Sales Revenue × Sales Revenue Invested Capital Sales Margin Capital Turnover Economic Value Added Economic value added tells us how much shareholder wealth is being created. Economic Value Added Investment center’s after-tax operating income – Investment charge = Economic Value Added Weighted average cost of capital Investment center’s total assets Investment center’s current liabilities – ( ) After-tax cost of debt Market value of debt Cost of equity capital Market value of equity ( ( ) ) Market value of debt Market value of equity Improving R0I Three ways to improve ROI Increase Sales Prices Decrease Expenses Lower Invested Capital Learning Objective 3 Residual Income Investment center profit – Investment charge = Residual income Investment capital × Imputed interest rate = Investment charge Investment center’s minimum required rate of return Residual Income Residual income encourages managers to make profitable investments that would be rejected by managers using ROI. Learning Objective 4 Issues: Measuring Investment Capital Three issues must be considered before we can properly measure the investment capital: What assets should be included? Total assets. Total productive assets. Total assets less current liabilities. Only the assets controllable by the manager being evaluated. Learning Objective 5 Measuring Investment Capital The Second Issue Should we measure the investment at the beginning or end-of-period amount, or should we use an average of beginning and end-of- period amounts? Should the assets be shown at historical or current cost? Measuring Investment Center Income Division managers should be evaluated on profit margin they control. Exclude these costs: Costs traceable to the division but not controlled by the division manager. Common costs incurred elsewhere and allocated to the division. The key issue is controllability. Inflation: Historical Cost versus Current-Value Accounting Use of current-value accounting impacts the amount of: Invested capital. Income. Learning Objective 5 cont., 6 – 8 can be found in the Text Book

• Kế toán - Kiểm toán
• Managerial accounting
• Lecture Managerial accounting
• Kế toán quản trị
• Financial accounting
• Investment centers
• Transfer pricing
• Managerial accounting for managers
• Profitability analysis
• Decision making
• Operations management majors
• Nonmanufacturing costs
• Classifications of costs
• Managerial accounting information
• General cost classifi cations
• Product costs
• Process costing
• Standard costing systems
• Accounting information
• Managerial decision
• Process management
• Financial statement
• Cost concepts
• Managerial accounting basics
• Managerial cost
• Period costs
• Lecture Financial and managerial accounting
• Financial statements
• Managerial decisions
• Dynamic business environment
• Reporting manufacturing activities
• Accounting principles
• Fundamental accounting principles
• Lecture Fundamental accounting principles
• Relevant costing
• Accounting activities
• Business activities
• Income statement
• Accounting cycle
• Accounting for merchandising operations
• Merchandising operations
• Capital budgeting decisions
• Time value of money
• Income taxes
• After tax cost