ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
Lesson Title: Management Control and Strategic Performance Materials:
Measurement; Strategic Investment Units and Transfer Pricing SAS, Calculator
Lesson Objectives: References:
At the end of this module, I should be able to: Strategic Cost Management 2019-
1. Explain the concept and objective of performance evaluation 2020 edition by Ma. Elenita
and control system Balatbat Cabrera
2. Enumerate the advantages of performance evaluation and
control system
3. Explain the nature of Strategic Investment Unit (SIU) and the
different types of SBUs namely profit, cost, revenue, and
investment SBUs
4. Evaluate performance of a profit SBU, cost SBU, investment
SBU and revenue SBU
Productivity Tip: “Education is the passport to the future, for tomorrow belongs to those who prepare for it
today.” -Malcolm X
A. LESSON PREVIEW/REVIEW
1) Introduction
In this module, the concept, objective, and advantages of performance evaluation and control
system will be introduced.
2) Activity 1: What I Know Chart, Part 1
Try answering the questions below by writing your ideas under the column “What I Know”. Writing
keywords or phrases that you think are related to the questions will do.
What I Know Questions: What I Learned (Activity 4)
1 What is performance
evaluation?
2 What is strategic investment
unit?
3 What is responsibility center?
B. MAIN LESSON
1) Activity 2: Content Notes
LO1: Explain the concept and objective of performance evaluation and control system
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
Performance evaluation – is the process by which managers at all levels gain information about
the performance of tasks within the firm and judges that performance against: pre-established
criteria as set out in budgets, plans, and goals.
Management control – refers to the evaluation by the upper-level managers of the performance
of mid-level managers.
Operational control – means the evaluation of operating level employees by mid-level managers.
Objectives of Management Control
1. Motivate employees to exert a high level of effort to achieve the goals set by top
management
2. Provide the right incentive for managers to make decisions consistent with the goals set by
top management
3. Determine fairly the rewards earned by managers for their effort and skill and the
effectiveness of their decision making
LO2: Enumerate the advantages of performance evaluation and control system
Responsibility Center (Strategic Investment Unit) – is a specific unit of an organization
assigned to a manager who is held accountable for its operations and resources.
Responsibility Accounting (Strategic Performance Measurement) – is a system used by top
management to evaluate SIU managers.
Decentralized Organization – is one in which decision-making is not confined to a few top
executives but rather is spread throughout the organization, with managers at various levels
making key operating decisions relating to their sphere of responsibility.
Decentralization – practice of delegating decision-making authority to the lower levels
Reasons for Decentralization
▪ Better access to local information
▪ Cognitive limitations
▪ More timely response
▪ Focusing of central management
▪ Training and evaluation of segment managers
▪ Motivation of segment managers
▪ Enhanced competition
LO3: Explain the nature of Strategic Investment Unit (SIU) and the different types of SBUs
namely profit, cost, revenue, and investment SBUs
Strategic Business Unit – is a unit within the organization which has control over costs,
revenues, profits and/or investment funds.
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
Simply put, an SBU is a cluster of associated businesses which are responsible for its combined
planning treatment, i.e. the company engaged in a diversified range of businesses, categorises its
multitude of businesses into a few separate divisions, in a scientific way. The task may include
analysis and bifurcation of a variety of businesses.
It can be a business division, a product line of the division or even a specific product/brand,
targeting a particular group of customers or a geographical location.
The figure below shows an example of a strategic business unit structure.
Different types of SBUs (Responsibility Centers)
✔ Cost SBU – a unit within the organization wherein the manager is responsible for minimizing
costs subject to some output constraints. Manager is responsible only for costs.
✔ Profit SBU – a unit or segment within the organization wherein the manager is responsible for
the generation of revenues and control of costs incurred in that SBU. Manager is responsible
for both revenues and costs
✔ Investment SBU – a unit or segment within an organization where the manager is responsible
for the control of revenues, costs and investments made in that SBU. Manager is responsible
for revenues, costs, and investments
✔ Revenue SBU – a unit or segment within an organization where the manager is responsible
for selling budgeted quantities of various products or services at budgeted price.
LO4: Evaluate performance of a profit SBU, cost SBU, investment SBU and revenue SBU
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
2) Activity 3: Skill-building Activities
Exercise 1: Write T if the statement is correct and F if otherwise. Write your answers on the blank
space provided.
______1. A responsibility center is a business segment whose manager has control over costs,
revenues, or investments in operating assets.
______2. The basic objective of responsibility accounting is to charge each manager with those
costs and/or revenues over which he has control.
______3. Achieving goal congruence is less important in a centralized organization than in a
decentralized one.
______4. Decentralization can lead to greater job enrichment and satisfaction.
______5. A responsibility accounting system should include the revenues and costs under a
division manager’s control.
______6. Responsibility reports reflect the flow of information from operational units to top
management.
______7. A responsibility accounting system should include all revenues and costs of a division.
______8. Decentralization means that a unit manager has the authority to make all decisions
concerning that specific unit.
______9. Decentralization reduces the need for effective communication among an organization’s
departments.
______10. Decentralization increases the time required for decision-making.
______11. A manager of a cost center is evaluated solely on the basis of how well costs are
controlled.
______12. When management by exception is employed, favorable variances should not be
investigated.
______13. When management by exception is employed, both favorable and unfavorable
variances should be investigated.
______14. The manager of a revenue center has the authority to establish selling prices of
product.
______15. A profit center is typically an independent organizational unit.
______16. The manager of a profit center has the ability to set selling prices.
______17. The manager of an investment center is responsible for generating revenue as
well as controlling expenses.
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
______18. Sub-optimization occurs when a manager of a cost center focuses on the goals
of the cost center rather than on the goals of the organization as a whole.
______19. The amount of detail presented in a budget performance report for a cost center
depends upon the level of management to which the report is directed.
______20. The primary accounting tool for controlling and reporting for cost centers is a
budget.
Exercise 2: What are the four types of responsibility centers? What is the focus of each of these
responsibility centers?
Responsibility Center Focus
Activity 4: What I Know Chart, Part 2
It’s time to answer the questions in the “What I Know Chart” in Activity 1. Log in your answers in
the “What I Learned” column. Let’s go!
Activity 5: Check for Understanding
Write the capital letter of your answer on the blank space provided.
______1. Which of the following is more characteristic of a decentralized than a centralized
business structure?
a. The firm’s environment is stable.
b. There is little confidence in lower-level management to make decisions.
c. The firm grows very quickly.
d. The firm is relatively small.
______2. Costs of decentralization include all of the following except
a. more elaborate accounting control systems.
b. potential costs of poor decisions.
c. additional training costs.
d. slow response time to changes in local conditions.
______3. When the majority of authority is maintained by top management personnel, the
organization is said to be
a. centralized.
b. decentralized.
c. composed of cost centers.
d. engaged in transfer pricing activities.
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
______4. What term identifies an accounting system in which the operations of the business are
broken down into reportable segments, and the control function of a foreperson, sales
manager, or supervisor is emphasized?
a. responsibility accounting
b. operations-research accounting
c. control accounting
d. budgetary accounting
______5. In a responsibility accounting system, costs are classified into categories on the basis of
a. fixed and variable costs.
b. prime and overhead costs.
c. administrative and non-administrative costs.
d. controllable and noncontrollable costs.
______6. When used for performance evaluation, periodic internal reports based on a
responsibility accounting system should not
a. be related to the organization chart.
b. include allocated fixed overhead.
c. include variances between actual and budgeted controllable costs.
d. distinguish between controllable and non-controllable costs.
______7. A ___________ is a document that reflects the revenues and/or costs that are under the
control of a particular manager.
a. quality audit report
b. responsibility report
c. performance evaluation report
d. project report
______8. The cost object under the control of a manager is called a(n) __________________
center.
a. cost
b. revenue
c. responsibility
d. investment
______9. In evaluating the performance of a profit center manager, he/she should be evaluated on
a. all revenues and costs that can be traced directly to the unit.
b. all revenues and costs under his/her control.
c. the variable costs and the revenues of the unit.
d. the same costs and revenues on which the unit is evaluated.
______10. Performance evaluation measures in an organization
a. affect the motivation of subunit managers to transact with one another.
b. always promote goal congruence.
c. are less motivating to managers than overall organizational goals.
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
d. must be the same for all managers to eliminate sub-optimization.
______11. A ___________ is a document that reflects the revenues and/or costs that are
under the control of a particular manager.
a. quality audit report
b. responsibility report
c. performance evaluation report
d. project report
______12. The cost object under the control of a manager is called a(n)
__________________ center.
a. cost
b. revenue
c. responsibility
d. investment
______13. In evaluating the performance of a profit center manager, he/she should be
evaluated on
a. all revenues and costs that can be traced directly to the unit.
b. all revenues and costs under his/her control.
c. the variable costs and the revenues of the unit.
d. the same costs and revenues on which the unit is evaluated.
______14. Which of the following performance measures is (are) used to evaluate the
financial success or failure of investment centers?
a. Residual income.
b. Return on investment.
c. Number of suppliers.
d. Economic value added.
e. All of the above measures are used except "C."
______15. ROI is most appropriately used to evaluate the performance of:
a. cost center managers.
b. revenue center managers.
c. profit center managers.
d. investment center managers.
______16. Which of the following is not one of the common types of responsibility centers?
a. Cost Center
b. Profit Center
c. Investment Center
d. Revenue Center
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
______17. Most manufacturing plants are considered cost centers because the have control
over
a. sales and costs.
b. fixed assets and costs.
c. costs only.
d. fixed assets and sales.
______18. The following is a measure of a manager’s performance working in a cost center.
a. budget performance report
b. rate of return and residual income measures
c. divisional income statements
d. balance sheet
______19. A responsibility center in which the department manager has responsibility for
and authority over costs and revenues is called a(n):
a. profit center
b. investment center
c. volume center
d. cost center
______20. In a profit center, the department manager has responsibility for and the authority
to make decisions that affect:
a. not only costs and revenues, but also assets invested in the center
b. the assets invested in the center, but not costs and revenues
c. both costs and revenues for the department or division
d. costs and assets invested in the center, but not revenues
C. LESSON WRAP-UP
5) Activity 6: Thinking about Learning
Wow, congratulations! You are done with this session. Starting today, we will keep track of your
progress. Shade the module number you just completed.
Did you have challenges learning the concepts in this module? If none, which parts of the module
helped you learn the concepts?
______________________________________________________________________________
Some question/s I want to ask my teacher about this module is/are:
______________________________________________________________________________
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This document is the property of PHINMA EDUCATION.
ACC 118 Strategic Business Analysis
Module #17
Name:_______________________________________________________ Class number: _______
Section: ___________ Schedule:__________________________________ Date: _______________
FAQ
1. Why firms choose to decentralize?
● Local managers can make better decisions using local information.
● Local managers can also provide a more timely response to changing conditions.
● Decentralization permits training and motivating local managers.
● Top management is free to spend time on longer-range activities, such as strategic planning.
● Decentralization enhances competition among divisions.
What are the several types of financial information that is appropriate to review when evaluating
the performance of segment/unit managers?
All reports should be prepared utilizing the contribution approach which would separate costs by
behaviour and assign costs to segments only if they could be controlled by the segment. The report
should disclose contribution margin, contribution controllable by segment managers, and contribution
by each segment after the allocation of common costs.
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