| Balanced scorecard | A performance evaluation system that integrates financial and operational performance measures along four perspectives: financial, customer, internal business, and learning and growth |
| Capital turnover | Sales revenue divided by total assets and shows how much sales revenue is generated with every $1 of assets |
| Common fixed expenses | Fixed expenses that cannot be traced to the segment |
| Cost center | A responsibility center in which managers are responsible for controlling costs |
| Decentralize | A process where companies split their operations into different operating segments |
| Direct fixed expenses | Fixed expenses that can be traced to the segment |
| Favorable variance | A variance that causes operating income to be higher than budgeted |
| Flexible budget | A summarized budget prepared for different levels of volume |
| Flexible budget variance | The difference between the flexible budget and actual results with variances due to something other than volume |
| Goal congruence | When the goals of the segment managers align with the goals of top management |
| Gross book value | Historical cost of assets |
| Investment center | A responsibility center in which managers are responsible for generating revenues, controlling costs, and efficiently managing the division’s assets |
| Key performance indicators | Summary performance metrics used to assess how well a company is achieving its goals |
| Lag indicators | Performance indicators that reveal the results of past actions and decisions |
| Lead indicators | Performance measures that predict future performance |
| Management by exception | A management technique in which managers only investigate budget variances that are relatively large |
| Master budget variance | The difference between actual results and the master budget |
| Net book value | Historical cost of assets less accumulated depreciation |
| Performance reports | Reports that compare actual results against budgeted figures |
| Performance scorecard or dashboard | A report displaying the measurement of KPIs, as well as their short term and long term targets |
| Profit center | A responsibility center in which managers are responsible for both revenues and costs, and therefore profits |
| Residual income | Operating income minus the minimum acceptable operating income given the size of the division’s assets |
| Responsibility accounting | A system for evaluating the performance of each responsibility center and its managers |
| Responsibility center | A part of an organization whose manager is accountable for planning and controlling certain activities |
| Return on investment (ROI) | Operating income divided by total assets that measures the profitability of a division relative to the size of its assets |
| Revenue center | A responsibility center in which managers are responsible for generating revenue |
| Sales margin | Operating income divided by sales revenue that shows how much income is generated for every $1 of sales |
| Segment margin | The operating income generated by a profit or investment center before subtracting the common fixed costs that have been allocated to the center |
| Transfer price | The price charged for the internal sale of product between two different divisions of the same company |
| Unfavorable variance | A variance that causes operating income to be lower than budgeted |
| Variance | The difference between an actual amount and the budgeted amount |
| Vertical integration | The acquisition of companies within one’s supply chain |
| Volume variance | The difference between the master budget and the flexible budget. The volume variance arises only because the actual volume differs from the volume originally anticipated in the master budget |
