CMA - OIR Part 1 Section B - Performance Managment, Topic 2 - Respnsibility Centers and Reporting Segments
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19 terms
Terms | Definitions |
|---|---|
 Revenue Centers | Respnsible for sales but not for the manufacturing costs of the sales |
| Cost Centers | Responsible for controlling costs in a departmetn that generates little or no revenue |
| Profit Centers | Responsible for both cost and revenues |
| Investment centers | Responsible for investments, costs, and revenues |
| Contribution Margion | The excess of sales revenue over variable costs, which contibutes toward fixed expenses and profits. |
| Controllable fixed costs | Costs that can be changed within a year. |
| Uncontrollable fixed costs | Costs that take more than one year to influence, or from nonnegotiable corporate allocation of headquarters expenses. |
| Traditional reporting Approach | Cost Organized by Function |
| Contribution reporting approach | Costs Organized by Behavior |
| Segment Margin | The segment's contribution margin less all traceable fixed costs for the segment. |
| Traceable Fixed costs | Costs that would not exist were it not for the segment. Examples include administrative salaries for segment manager, building maintenance costs or insurance premiums that can be traced to the segment. |
| Common Costs | Fixed costs shared by two or more segments. These need to be allocated so that they are included in the financial results of the segment. |
| Stand-alone method | A method of cost allocation that determines the relative proportion of cost driver for each party that shares a common cost and allocates the costs by those percentages. |
| Incremental method | A method of cost allocation that allocates costs by ranking the parties by a primary user and incremental users, or those users that add an additional cost due to the fact that there is now more than one user of the cost. |
| Arm's Length | Used todescribe pricing that represents an impartial or fair market price and does not give speacial concessions for internal customers. |
| Market Price Model | Sets the price for a good or service at going market prices - atrue arm's length model. |
| Negotiated price model | Sets the transfer price through negotiation between the buyer and the seller. |
| Variable cost Model | Sets transfer prices at the unt's cariable cost, or the actual cost to produce the good or service less all fixed costs. This method will lower the selling unit's profits and increase the buying unit's profits due to the low price. |
| Full cost (absorption) model | Starts wit the seller's variable cost for the item and then allocates fixed costs to the price. |
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