Module+12000+XI+Vocabulary

XI. Module 12000 Vocabulary amb

**Vocabulary ** **//__ Decentralization: Responsibility Accounting, Performance Evaluation, and Transfer Pricing __//**  **Four major types of responsibility centers:** 1) **Cost center ** – A responsibility center in which a manager is responsible only for costs  2) **Revenue center ** – A responsibility center in which a manager is responsible for only revenues 3) **Profit center ** – A responsibility center in which a manager is responsible for both revenues and costs  4) **Investment center ** – A responsibility center in which a manager is responsible for revenues, costs, and investments **Examples: ** Number of units produced per hour or the cost of those units <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;"> **Examples:** Value-added versus non-value added activities <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;"> **Bargaining range includes; minimum transfer price and maximum transfer price**
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Responsibility center **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;"> – Part of the business whose manager is accountable for specified activities.
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Responsibility accounting – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">A system that measures the results of each responsibility center and compares those results with some expected or budgeted outcome.
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Centralized decision making – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Where decisions are made at the very top level, and lower-level managers are charged with implementing these decisions
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Decentralized decision making – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Allows managers at lower levels to make and implement key decisions pertaining to their areas of responsibility
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Decentralization – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">The practice of delegating decision-making authority to the lower levels
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Multinational Corporation (MNC) – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">A corporation that does business in more than one country in such a volume that its well-being and growth rest in more than one country
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Efficiency – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Measures how well activities are performed;
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Effectiveness – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Can be defined whether the manager has performed the right activities
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Goal Congruence - **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Means that the goals of the manager are closely aligned with the goals of the firm
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Return of Investment (ROI) – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">The most common measure of performance for an investment center
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Operating income – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Refers to earnings before interest and income taxes and is typically used for divisions
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Operating assets – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Include all assets used to generate operating income
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Margin – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">The ratio of operating income to sales
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Turnover – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Found by dividing sales by average operating assets
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Myopic behavior – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">The emphasis on short-run results at the expense of the long run
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Residual income – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">The difference between operating income and the minimum dollar return required on a company’s operating assets
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Economic value added (EVA) – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Is after-tax operating income minus the total annual cost of capital
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Weighted average cost of capital – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">The proportionate share of each method of financing is multiplied by its percentage cost and summed
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Perquisites – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">A type of fringe benefit received over and above salary
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Stock option – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">The right to buy a certain number of shares of the company’s stock, at a particular price and after a set length of time
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Transfer prices – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">The prices charged for goods produced by one division and transferred to another
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Transfer pricing problem – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Concerns finding a system that simultaneously satisfies all three objectives; accurate performance evaluation, goal congruence, and preservation of divisional autonomy
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Opportunity cost approach – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Identifies the minimum price that a selling division would be willing to accept and the maximum price that the buying division would be willing to pay
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Comparable uncontrolled price method – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">or Market price
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Resale price method – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Is equal to the sales price received by the reseller less an appropriate markup
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Cost-plus method – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">or the Cost-based transfer price
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Advance pricing agreements (APAs) – **<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Assists tax-paying firms to determine whether a proposed transfer price is acceptable to the IRS in advance of income tax filing

<span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Hansen, D.R. & Mowen, M.M (2011). //Cornerstones of Cost Accounting//. Mason, OH: South-Western, Cengage Learning
 * <span style="font-family: 'Times New Roman','serif'; font-size: 16px; line-height: 115%;">Reference: **