《Management Accounting 7th管理会计 Don R.Hansen》ch13.pptVIP

Chapter 1 - Responsibility accounting is a system that measures the results of each responsibility center according to the information managers need to operate their centers. Reasons for Decentralization 1. Ease of gathering and using local information 2. Focusing of central management 3. Training and motivating segment managers 4. Enhanced competition, exposing segments to market forces Economic value added EVA is after-tax operating profit minus the total annual cost of capital. There are two steps involved in computing cost of capital: 1. Determine the weighted average cost of capital a percentage figure 2. Determine the total dollar amount of capital employed Weighted Average Cost of Capital Suppose that Mahalo, Inc., had after-tax operating income last year of $900,000. Three sources of financing were used by the company: $2 million of mortgage bonds paying 8 percent interest, $3 million of unsecured bonds paying 10 percent interest, and $10 million in common stock, which was considered to be no more or less risky than other stocks. Mahalo, Inc. pays a marginal tax rate of 40 percent. Mahalo’s EVA is calculated as follows: After tax operating income $900,000 Less: Cost of capital 784,000 EVA $116,000 Behavioral Aspects of EVA In many companies, the responsibility for investment decisions rests with corporate management. As a result, the cost of capital is considered a corporate expense. If a division builds inventories and investment, the cost of financing that investment is passed along to the overall income statement and does not show up as a reduction from the division’s operating income. Why would managers not provide good service? There are three reasons: 1. They may have low ability 2. They may prefer not to work as hard as needed 3. They may prefer to spend company resources on perquisites The value of a transferred good is revenue to the selling division and cost to the buying division. This value is called transfer pricing. 1 divisi