Posted On: Nov. 13, 2017
Financial management MODULE 5 Decentralization and Relevant Costs for Decision-Making This module continues the discussion of performance measures through the use of return on investment (ROI), and retained and residual income to assure organizational goals and motivate managers. The module will further focus on relevant and irrelevant cost data and operational decisions for best alternatives to meet organizational and business goals and objectives. Objectives: After completing this module, you should be able to understand and apply learning objectives related to the role of cost, profit analysis and investment centers in a decentralized organization structure, notably: • Compare and contrast relevant and irrelevant costs in the decision-making process. • Formulate and analyze capital investment alternatives. • Perform analyses for the viability of product lines. • Determine the best and most cost efficient use of resources. • Compute break-even-point and return on investment (ROI) for organizational investments. • Assess retained and residual income as a performance measure for organization operation. Readings: • Brewer, Garrison, Noreen (2007). Introduction to Managerial Accounting 4/e, McGraw-Hill. Chapters 10 and 11. Assignments: Please submit ONE MS Word document that contains all of your answers. Please use Excel and copy and paste your answers to the document you will submit for evaluation. Please show your answers step-by-step. Your assignment shall be well organized and formatted. Your assignment shall illustrate your clear understanding of how a managerial accounting manager measures, reports, and evaluates performance for various types of responsibility centers. It should also illustrate that you know how to calculate return on investment (ROI), residual income, and economic values. Upon successful completion of this module, I am confident that you will understand the importance of linking performance incentives to performance measures, while providing instruction and tools for short-run decision. Exercises: [10 points each] Chapter 10 1. Exercise 10-8 "Images.com", p. 442. 2. Problem 10-13A "Kramer Industries" Return on Investment (ROI); Residual Income; Decentralization, p. 444. Chapter 11 1. Exercise 11-6 Identification of Relevant Costs, pp. 479-480. Please answer only part one. 2. Problem 11-12A "Wright Airlines" Dropping or Retaining a flight, p. 482-483. Issues to Consider: [10 points] Read the Ethics Challenge on page 488, and write a two-paragraph narrative addressing the first part of the question. Discussion Questions: [10 points each] 1. If you wanted to encourage efficient operation within any organization, what would be the best method of performance measure for management and why? 2. The key to the efficient utilization of a scarce resource is the contribution margin per unit of the constraint resource. What does this statement mean? Provide examples in your discussion. Summary: Module 5 continued the discussion of how a managerial accounting manager measures, reports, and evaluates performance for various types of responsibility centers. The balanced scorecard was discussed with its links to the management cycle isolated. The calculation of performance measures such as return on investment (ROI), residual income, and economic value added were also covered. Various approaches to performance reporting by different types of decentralized organizations, including flexible and fixed budgeting were introduced. The module emphasized the importance of linking performance incentives to performance measures, while providing instruction and tools for short-run decision. A discussion of how the management cycle is used to identify relevant and irrelevant cost and their respective utilization in the decision-making process was also included. Decision analysis in a manufacturing organization facing outsourcing decisions, special order decisions, segment profitability decisions, product mix decisions in an environment of constrained or limited resources, and sell or process-further decisions were also addressed in this module. The module concluded with an application of various types of decisions for service or non-manufacturing organizations as well.