The Complete CFO Handbook

Chapter 12. Responsibility Center Performance Evaluation

Agenda

Item 1	Describe the bases of comparison used for performance evaluation.
Item 2	Illustrate the use of the flexible budget in measuring performance.
Item 3	Determine alternative courses of action and indifference points in cost center decision making.
Item 4	Define a controllable income statement for the evaluation of profit center performance.
Item 5	Compute the contribution margin ratio as part of segment‐oriented profit center decision making.
Item 6	Define and compute return on investment, investment turnover, and the earnings ratio.
Item 7	Identify the strengths and weaknesses of return on investment.
Item 8	Define residual income.
Item 9	Apply return on investment and residual income in investment center decision making.
Item 10	Describe the complications inherent in the valuation of controllable assets.
Item 11	Analyze changes in gross profit.
Item 12	Define and compute a volume variance, a sales price variance, and a cost variance for single‐ and multiple‐product firms.
Item 13	Explain the role of gross profit variance analysis in the management control process.

All organizations, regardless of nature, size, or internal operating structure, are vitally concerned with performance measurement. In a profit‐making enterprise, owners and creditors measure management's performance through the use of financial statement ratios such as earnings per share, dividends per share, return on assets, return on stockholders' equity, coverage ratios, and ...