AKUNTANSI MANAJEMEN
PERTEMUAN 3 (Sesi 5-6):
Segmented Reporting
Achmad Zaky,MSA.,Ak.,SAS.,CMA.,CA
*Slide ni bersumber dari PPT Hansen-Mowen
RESPONSIBILITY CENTER: Definition
Is a segment of the business
whose manager is accountable
for specified sets of activities.
ACCOUNTING INFORMATION
USED TO MEASURE PERFORMANCE
Cost
Cost center
Sales
Capital
Investment
Other
Revenue center Direct cost
only
Profit center
Investment center
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
Costing Comparison
Variable costing is a method of inventory costing
in which only variable manufacturing costs are
included as inventoriable costs
Absorption costing is a method of inventory
costing in which all variable manufacturing costs
and all fixed manufacturing costs are included
as inventoriable costs
Differences in Income
Operating Income will differ between
Absorption and Variable Costing
The amount of the difference
represents the amount of Fixed
Product Costs capitalized as
Inventory under Absorption costing,
and expensed as a period costs under
Variable Costing
INVENTORY VALUATION: Background
Units in beginning inventory
Units produced
Units sold ($300 per unit)
0
10,000
8,000
Variable costs per unit
Direct materials
$ 50
Direct labor
100
Variable overhead
50
Fixed costs
Fixed overhead per unit produced
Fixed selling & administrative
25
100,000
ABSORPTION COSTING
Direct materials
Direct labor
Variable overhead
Fixed overhead per unit produced
Unit product cost
50
100
50
25
$ 225
Value of ending inventory =
2,000 x $ 225 = $ 450,000
8
VARIABLE COSTING
Direct materials
Direct labor
Variable overhead
Unit product cost
50
100
50
$ 200
Value of ending inventory =
2,000 x $ 200 = $ 400,000
9
10
COMPARATIVE INCOME STATEMENTS
Income lower under
variable costing
where fixed costs are
expensed for period.
ABSORPTION INCOME STATEMENT
Sales ($300 x 8,000)
Less Cost of goods sold
Gross margin
Less S&A expenses
Operating income
$ 2,400,000
1,800,000
$ 600,000
100,000
$ 500,000
CGS =
8,000 x $ 225 = $ 1,800,000
11
VARIABLE INCOME STATEMENT
Sales
Less variable expenses
Contribution margin
2,400,000
1,600,000
800,000
Less fixed costs
Operating income
350,000
$
450,000
Variable costs: 8,000 x $200
Fixes costs: $250,000 + 100,000
12
Comparative Income Effects
Variable Costing
Absorption Costing
Production = Sales
Equal
Equal
Production > Sales
Lower
Higher
Production < Sales
Higher
Lower
How do changes in
unit inventory cost
affect operating
income if?
14
SEGMENT: Definition
Is a subunit of a company of
sufficient importance to
warrant performance reports.
15
DIRECT FIXED EXPENSES: Definition
Are fixed expenses directly
traceable to a segment &
therefore, avoidable. If segment
eliminated, so are expenses.
16
COMMON FIXED EXPENSES: Definition
Are jointly caused by 2 or more
segments. These expenses
persist even if 1 segment is
eliminated.
LO
17 2
COMPARATIVE INCOME STATEMENTS
Segment margin is
contribution to firms
common fixed costs.
FORMULA: ROI
ROI relates operating profits to assets
employed.
Return on Investment (ROI)
=
Operating Income
Average Operating Assets
LO
19 3
What is operating income?
What are operating assets?
Operating income is earnings before
interest & taxes.
Operating assets are assets acquired
to generate operate income.
ALPHA CO. & BETA CO. Background
Alpha
Beta
Operating income
$ 100,000 $ 200,000
Operating assets
$ 500,000 $2,000,000
20
21
COMPARING ROI
ROI: ALPHA
= Op. Income / Ave. Op. Assets
= $100,000 / $500,000 = .20
ROI: BETA
= Op. Income / Ave. Op. Assets
= $200,000 / $2,000,000 = .10
LO
22 3
MARGIN & TURNOVER: ROI
Separating ROI into margin & turnover
provides better analysis.
Return on Investment (ROI)
= (Op. Income / Sales) x (Sales / Ave. Op. Assets)
LO
23 3
What is margin?
What is turnover?
Margin is the ratio of operating to
sales.
Turnover tells how many dollars of
sales results from every dollar of
invested assets.
LO 3
CELIMAR CO. Background
Sales
$ 480,000
Operating income
$ 48,000
Operating assets
$ 300,000
24
25
MARGIN & TURNOVER: ROI
Separating ROI into margin & turnover
provides better analysis.
Return on Investment (ROI)
= ($48,000 / $480/000) x ($480,000 / $300,000)
= 0.10 x 1.6
= 16%
26
ADVANTAGES OF ROI
Encourages managers to focus on
Relationship among sales, expenses (& possibility
investment if this is investment center)
Cost efficiency
Operating asset efficiency
LO 3
PLASTICS DIVISION EXAMPLE
Without Increased
Advertising
Sales
Less expenses
With Increased
Advertising
$ 2,000,000
$ 2,200,000
1,850,000
2,040,000
Operating income
$ 150,000
Operating assets
$ 1,000,000
$ 1,050,000
15%
15.24%
ROI
160,000
The current ROI is the hurdle rate used to make decisions about changes.
27
28
DISADVANTAGES OF ROI
Can product a narrow focus on divisional
profitability at expense of profitability for overall
firm
Encourages managers to focus on short run at
expense of long run
ALTERNATIVES: ROI
Only
Project I
Only
Project II
Both
Projects
Op. income $ 8,800,000
$ 8,140,000
$9,440,000 $ 7,500,000
Op. assets
$54,000,000 $64,000,000 $50,000,000
ROI
$60,000,000
14.67%
15.07%
14.75%
Neither
Project
15.00%
29
LO
30 4
RESIDUAL INCOME
Residual income is the difference between
operating income and minimum dollar return
on sales.
Residual Income
= Operating income
(Min. rate of return x Ave. Operating Assets)
= $48,000 (0.12 x $300,000)
= $12,000
ALTERNATIVES: Residual Income
In 000s
Only
Project I
Only
Project II
Both
Projects
Neither
Project
Op. income
$ 8,800
$ 8,140
$9,440
$ 7,500
Op. assets
$60,000
$54,000
$64,000
$50,000
Min. return*
6,000
5,400
6,400
5,000
Residual Inc.
$2,800
$ 2,740
$ 3,040
$ 2,500
* 10%
31
LO
32 4
ECONOMIC VALUE ADDED (EVA)
EVA is net income minus total annual cost of
capital. Projects with positive EVA are
acceptable.
Economic value added (EVA)
= Net income
(% cost of capital x Capital employed)
33
TRANSFER PRICING: Definition
Is the price charged for a
component by the selling
division to the buying division
of the same company.
LO
34 5
What are the minimum &
maximum transfer prices?
The minimum transfer price would
leave the selling division not worse off
and the maximum would leave the
buying division no worse off than if
sold (acquire) externally.
35
TRANSFER PRICE: Choices
Market price
Best choice if there is a competitive outside
market
Cost-Based price
When there is not good outside price
Negotiated price
Useful with there are market imperfections
