UCF-ACG2071 Ch. 10 Performance Evaluation

UCF-ACG2071 Ch. 10 Performance Evaluation - Example# 1 . 2.

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In Class Examples – Chapter 10 Performance Evaluation Example #1 - Comment on whether each description is characteristic of centralized or decentralized company. 1. Lawrence Company has a policy that they promote from within the company whenever possible.  They have a formal training program for  lower-level managers. DECENTRALIZED 2. Walker Company is divided into several operating units DECENTRALIZED 3. Two Turtles is a small independent pet shop in Akron, Ohio.  The owner is also the manager of the store. CENTRALIZED 4. Managers have the authority to make decisions about product offerings and pricing because the company wants their managers to be able to  respond quickly to local market demand. DECENTRALIZED 5. Bobbins Craft, Inc. wants to empower its managers to make decisions so that managers motivation is increased and retention of managers  increases. DECENTRALIZED 6. The duplication of services caused the Rondell Company to “flatten” its organization structure.  The Rondell Company now has a single payroll  department, a single human resources department, and a single administration. CENTRALIZED 7. The Plastic Lumber Company, Inc. is managed by its owner, who oversees production, sales, engineering, and the other administrative  functions. CENTRALIZED Example #2 Categorize the following as revenue, cost, profit or investment centers 1. Manager of maintenance department - COST 2. Manager of a McDonald’s restaurant - PROFIT 3. Buyer for department store - COST 4. Vice President of Operations for John Deere Tractor Company - INVESTMENT 5. Marketing Director of Nike’s northeast sales territory - REVENUE 6. Manager of assembly line for auto manufacturing plant - COST 7. President of Ford Motor Company - INVESTMENT 8. Manager of the accounting department - COST Example #3 Master Budget Variances Actual Budget Variance Variance % Sales $10,000 $11,000 $1,000U 10% U Variable Costs $5,000 $6,000 $1,000F 16.6% F Contribution Margin $5,000 $5,000 $0 $0 Fixed Costs  $2,000 $3,000 $1,000F 33%F Operating Income $3,000 $2,000 $1,000F 50%F What are the limitations of this analysis? Remember Sales is calculated by taking unit selling price times # of units. Variable cost = unit variable cost times # of units Since we don’t know how many units were used to calculate the budget plan and how many actual units sold, it is hard to compare the budgeted and  actual numbers.  Some of the differences could solely be because the number of units varied in the budgeted versus actual numbers.  That is we go on to  perform a flexible variance analysis to increase our insight into the situation.  See examples 6 & 7 for preparing a flexible variance analysis.
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