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Common fixed cost A fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments. (p. 559) Cost center A business segment whose manager has control over cost but has no control over revenue or the use of investment funds. (p. 553) Decentralized organization An organization in which decision making is not confined to a few top executives but rather is spread throughout the organization. (p. 552) Economic value added (EVA) A concept similar to residual income. (p. 573) Investment center A business segment whose manager has control over cost and over revenue and that also has control over the use of investment funds. (p. 554) Margin Net operating income divided by sales. (p. 568) Net operating income Income before interest and income taxes have been deducted. (p. 567) Operating assets Cash, accounts receivable, inventory, plant and equipment, and all other assets held for productive use in an organization. (p. 567) Profit center A business segment whose manager has control over cost and revenue but has no control over the use of investment funds. (p. 554) Residual income The net operating income that an investment center earns above the required return on its operating assets. (p. 573) Responsibility center Any business segment whose manager has control over cost, revenue, or the use of investment funds. (p. 554) Return on investment (ROI) Net operating income divided by average operating assets. It also equals margin multiplied by turnover. (p. 566) Segment Any part or activity of an organization about which the manager seeks cost, revenue, or profit data. (p. 553) Segment margin The amount computed by deducting the traceable fixed costs of a segment from the segment's contribution margin. It represents the margin available after a segment has covered all of its own costs. (p. 561) Traceable fixed cost A fixed cost that is incurred because of the existence of a particular business segment. (p. 559) Turnover The amount of sales generated in an investment center for each dollar invested in operating assets. It is computed by dividing sales by the average operating assets figure. (p. 568) Value chain The major business functions that add value to a company's products and services. These functions consist of research and development, product design, manufacturing, marketing, distribution, and customer service. (p. 564) |
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