Chapter 10 Managerial Accounting

Agency Theory-a theory used to describe the formal choices of performance measures and rewards.

Capital Turnover-Revenue divided by invested capital.

Cost of Capital-what a firm must pay to acquire more capital, whether or not it actually has to acquire more capital to take on a project.

Decentralization-the delegation of freedom to make decisions. The lower in the organization that this freedom exists, the greater the decentralization.

Dysfunctional Behavior-any action taken in conflict with organizational goals.

Economic Value Added-equals net operating income minus the after-tax weighted-average cost of capital multiplied times the sum of long-term liabilities and stockholders’ equity.

Gross Book Value-the original cost of an asset before deducting accumulated depreciation.

Incentives-those formal and informal performance-based rewards that enhance managerial effort toward organizational goals.

Income Percentage of Revenue (Return on Sales)-income divided by revenue.

Management by Objectives-the joint formulation by a manager and his or her superior of a set of goals and plans for achieving the goals for a forthcoming period.

Net Book Value-the original cost of an asset less any accumulated depreciation.

Residual Income-net operating income less “imputed” interest.

Return on Investment-a measure of income or profit divided by the investment required to obtain that income or profit.

Segment Autonomy-the delegation of decision-making power to managers of segments of an organization.

Transfer Price-the amount charged by one segment of an organization for a product or service that it supplies to another segment of the same organization.