Managerial Accounting An Introduction To Concepts, Methods, And

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```					Managerial Accounting:
An Introduction To Concepts,
Methods, And Uses

Chapter 10
Profit Center
Cost Center Performance
Evaluation
Maher, Stickney and Weil
Learning Objectives (Slide 1 of
2)
    Explain the reasons for conducting
variance analyses.
    Describe how to use the budget for
performance evaluation.
    Identify the different types of variances
between actual results and the flexible
budget.
    Assign responsibility for variances.
    Describe the role of variance analysis in
service organizations.
Learning Objectives (Slide 2 of
2)
    Explain the difference between price and
efficiency variances.
    Identify the relation between actual,
budgeted and applied fixed manufacturing
costs.
    Explain why an effective performance
measurement system requires employee
involvement.
    Explain how to compute the mix variance
(Appendix 10.1)
Discuss Responsibility
For Variances
Marketing Variances (Slide 1
of 4)

 Marketing is usually assigned
responsibility for what?

 Sales volume variance measures the
impact on profits when sales volume
is different from what was expected
Marketing Variances (Slide 2
of 4)
 It is essentially a contribution margin
variance equal to:
Budgeted contribution margin per unit
Times: (Budgeted - Actual Sales volume)
= Sales Volume Variance
 Note that standard variable cost is used to
compute contribution margin to avoid
mixing cost variances with the effect of
sales volume
Marketing Variances (Slide 3
of 4)

 Variable marketing cost variances might
be the result of incorrect amounts paid
for sales commissions, shipping, etc.
 Accountants would investigate variances
resulting from bookkeeping adjustments
or errors
 Management would investigate
marketing activities which may have
caused variances
Marketing Variances (Slide 4
of 4)

 Fixed marketing costs are often
discretionary
 A favorable variance does not always
indicate good performance
 For example, favorable variance might
mean the company advertised less than
planned; not necessarily good
Variances
Draw the model for computing
price and efficiency variances
What are some reasons for
variances?
Why do service organizations
perform variance analysis?
Beyond the Numbers
 Firms have traditionally relied on
financial measures to evaluate
employee performance
 Recently, companies have begun using
nonfinancial performance measures
 Used to direct employees’ attention to
what they can control
Beyond the Numbers (Cont.)

 Performance evaluation begins
with understanding an
organization’s goals
 Develop measures to evaluate
performance in achieving those goals
Performance Evaluation:
The Process (Slide 1 of 2)
 Define Continuous improvement
continuously reevaluating and
improving efficiency of activities by:
 Improving activities through
documentation and understanding
 Eliminating activities that do not add
value
 Improving efficiency of activities that
Performance Evaluation:
The Process (Slide 2 of 2)
Define Competitive benchmarking
Discuss Performance Evaluation:
The Measures (Slide 1 of 5)
Performance Evaluation:
The Measures (Slide 2 of 5)
 Functional performance measures-
efficiency of functional activities
affects overall performance of
organization
 Appropriate functional performance
measures depend on the type of activity
Performance Evaluation:
The Measures (Slide 3 of 5)
 Example: Forecasting quality
 Percent error in sales forecast
 Usefulness of forecasts to decision
makers
 Time Measures
 Product cycle time - total time to
produce a good or provide a service
Performance Evaluation:
The Measures (Slide 4 of 5)
As cycle time increases, so do costs of
processing, inspection, moving, and storage
Product cycle efficiency is calculated as
follows:
___   Processing Time___________
(Processing Time + Moving Time
+ Storing Time + Inspection Time)

 The higher the percentage, the less time
and money spent on non-value-added
activities
Performance Evaluation:
The Measures (Slide 5 of 5)
 Environmental performance - by
measuring environmental
performance, firms hope to provide
incentives for employees to help
create a clean environment
 Example: a performance measure to
track waste minimization is:

Waste Ratio (%) = Waste (in pounds)
Total Output (in pounds)
Review Employee
Involvement (Slide 1 of 2)
Review Employee
Involvement (Slide 2 of 2)
If you have any comments or suggestions concerning this
PowerPoint Presentation for Managerial Accounting, An

Dr. Michael Blue, CFE, CPA, CMA
blue@bloomu.edu
Bloomsburg University of Pennsylvania

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