Discussion When Comparing Various Divisions Within A Company

Discussion 1when Comparing Various Divisions Within A Company Describ

Discussion 1 when comparing various divisions within a company, describe what problems can arise from evaluating divisions that have different accounting methods, as described in Chapter 11 of your text. Cite three examples of accounting methods that could cause divisions' profits to differ. Your initial post should be words. Discussion 2 (Exercise 12-12) Dr. Steve Rosenthal has his own medical practice.

He specializes in the treatment of diabetics. His staff consists of a receptionist, two nurses, a lab technician, and a dietitian. As patients enter the outer office, they check in with the receptionist. The patient then waits until called by a nurse. When called, the patient moves from the waiting room to the inner offices.

The patient must weigh in and is then assigned a room. The nurse assigning the patient to a room gathers all the personal data for updating the medical records, such as insulin dosage, medication, illnesses since last visit, etc. The nurse also takes an initial blood sample for blood sugar testing and performs a blood pressure test. The patient then waits until the doctor comes in. After the doctor's conference, the nurse returns to take more blood samples, depending on what is ordered by the doctor.

The patient then waits until the dietitian comes to review eating habits and talk about how to improve meal planning and weight control. The patient returns to the receptionist to pay for the office visit and to schedule the next visit. In your response include the following: 1. Identify the activities in the doctor's office that fall into process time, inspection time, move time, wait time, and storage time. 2: List the activities in the doctor's office that are candidates for non value-added activities. Explain why you classify them as non value-added activities.

Paper For Above instruction

Introduction

Evaluating divisions within a company using different accounting methods presents significant challenges, especially when assessing performance, profitability, and resource allocation. Variations in accounting practices can distort financial comparisons, leading to misguided managerial decisions. This paper discusses the problems that arise from such differences and provides examples of three accounting methods that could cause divisions’ profits to differ significantly.

Problems from Different Accounting Methods in Division Evaluation

When divisions within a company employ varying accounting methods, it becomes difficult to perform accurate and fair comparisons. The primary issue is that discrepancies in accounting practices can mask the true operational performance of a division, leading to misleading conclusions about profitability, efficiency, and resource utilization. Managers may either overestimate or underestimate a division’s contribution to overall corporate success based solely on the chosen accounting approach rather than actual operational effectiveness.

Another problem is that inconsistent accounting methods can distort financial ratios and key performance indicators, such as return on investment (ROI), profit margins, and asset turnover ratios. Such distortions hinder strategic decision-making, resource allocation, and performance evaluations. For example, a division using FIFO inventory accounting may report higher profits during periods of rising prices compared to one using LIFO, creating an unfair basis for comparison regardless of actual performance.

Furthermore, differing accounting methods complicate internal financial reporting and can result in interference with performance incentives and reward systems. Since divisions might be evaluated differently depending on the accounting approach, managers may make decisions aimed at optimizing their division’s reported profits rather than sustainable operational improvements. This can foster internal competition rather than collaboration, undermining corporate cohesion and strategic objectives.

Examples of Accounting Methods Causing Profit Variations

1. Inventory Valuation Method (FIFO vs. LIFO): The choice between FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) significantly affects cost of goods sold (COGS) and, consequently, profit margins. During inflationary periods, FIFO results in lower COGS and higher profits, whereas LIFO produces higher COGS and lower profits.

2. Depreciation Methods (Straight-Line vs. Accelerated Depreciation): Using straight-line depreciation spreads expense evenly over the asset's useful life, resulting in consistent profit margins. Accelerated methods like declining balance allocate higher expense in early years, reducing current profits but potentially increasing profits in later years, thus impacting division comparisons differently depending on asset age.

3. Revenue Recognition Policies: Divergent policies on when to recognize revenue—such as upon delivery versus over the contract period—can lead to discrepancies in reported profits across divisions, especially if divisions operate under different contractual or sales conditions.

Conclusion

In conclusion, evaluating divisions with different accounting methods is fraught with challenges that can distort performance assessments. Managers must understand these differences and account for them when comparing divisions. Standardized accounting practices or adjusted internal reports can help mitigate these issues, providing a clearer view of real operational performance across company segments.

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