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allocated costs
costs that are generated by non–revenue generating portions of the business, such as corporate headquarters, that are assigned based on some formula to the revenue generating portions of the business
centralization
business structure in which one individual makes the important decisions and provides the primary strategic direction for the company
controllable costs
those that a company or manager can influence
cost approach
transfer pricing structure in which the transfer price may be based on total variable cost, full cost, or a cost-plus scenario, calculated by adding a markup to either variable cost or full cost
cost center
organizational segment in which a manager is held responsible only for costs
decentralization
business structure in which the decision-making is made at various levels of the organization
discretionary cost center
organizational segment in which a manager is held responsible only for controllable costs when there is not a well-defined relationship between the center’s costs and its services or products
goal congruence
integration of multiple goals, either within an organization or across multiple components or entities; congruence is achieved by aligning goals to achieve an anticipated mission
investment center
organizational segment in which a manager is accountable for profits (revenues minus expenses) and the invested capital used by the segment
lower-level management
level of management that provides basic supervision and oversight for the operations of the organization
management control system
structure within an organization that allows managers to establish, implement, and monitor progress toward the strategic goals of the organization
market price approach
transfer pricing structure in which the transfer price is based on the price the seller would use for an outside customer
mid-level management
level of management that receives direction from upper management and supervises and provides direction to lower-level management
negotiated price approach
transfer pricing structure in which the transfer price is based on negotiations between the buying segment and the selling segment
organizational chart
graphical representations illustrating the authority for decision-making and oversight throughout an organization
profit center
organizational segment in which a manager is responsible for and evaluated on both revenues and costs
residual income (RI)
amount of income a given division (or project) is expected to earn in excess of a firm’s minimum return goal
responsibility accounting
method of encouraging goal congruence by setting and communicating the financial performance measures by which managers will be evaluated
responsibility centers
segments in which supervisors or managers have responsibility for the performance of the center and the authority to make decisions that affect the center
return on investment (ROI)
measure of the percentage of income generated by profits that were invested in capital assets
revenue center
part of an organization in which management is evaluated based on the ability to generate revenues; the manager's primary control is only revenues
segment
portion of the business that management believes has sufficient similarities in product lines, geographic locations, or customers to warrant reporting that portion of the company as a distinct part of the entire company
transfer pricing
pricing structure used when one segment of a business “sells” goods to another segment of the same business
uncontrollable costs
those that an organization or manager has little or no ability to influence
upper management
level of management that consists of the board of directors and chief executives charged with providing strategic guidance for the organization
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