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Chapter 11
The Environment of
Financial Control
The Environment of
Financial Control
Financial Control
Decentralization
Decentralization
Centralized Organizations
In centralized organizations:
Technology and customer requirements are well
understood
The product line consists mostly of commodity
Centralized Organizations
doing things
Changing Environment
Decentralization :
Allows motivated and well-trained organization
Degrees of Decentralization
Responsibility Centers
Responsibility Centers
Coordinating Responsibility
Centers
Responsibility Centers
and Financial Control
Cost centers
Revenue centers
Profit centers
Investment centers
Cost Center
environmental commitments
2012 Pearson Prentice Hall. All rights reserved.
Revenue Center
Costs Incurred by
Revenue Centers
Drawbacks of Revenue
Centers
Profit Centers
Profit Centers
Profit Centers
Profit Centers
control
Poor corporate decisions
Poor local decisions
Investment Center
Evaluating Responsibility
Centers
Evaluating Responsibility
Centers
experience?
How does performance compare with similar
organizations?
revenue
Interpreting Reports
with Caution
Interpreting Reports
with Caution
Segment margin reports usually contain soft
numbers
Transfer Pricing
Transfer Pricing
The new car department sells the new car and takes
Transfer Pricing
The new car department would like the value
Approaches to
Transfer Pricing
cost
Full cost
Full cost plus a percent markup on full cost
Problems with
Cost-Based Price
Problems with
Cost-Based Price
Cost Allocations to
Support Financial Control
Interpreting Segment
Financials
optimal price
The receiving division to want a lower than
optimal price
centers
Determining Level of
Asset Use
Measuring Return on
Investment
ROI = Income/Investment
The Efficacy of
Financial Control
The Efficacy of
Financial Control
The Efficacy of
Financial Control
The Efficacy of
Financial Control