Ch10 - 330 Chapter 10 Lecture Notes Chapter theme: Managers...

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Unformatted text preview: 330 Chapter 10 Lecture Notes Chapter theme: Managers in large organizations have to delegate some decisions to those who are at lower levels in the organization. This chapter explains how responsibility accounting systems , segmented income statements , and return on investment (ROI), residual income, and balanced scorecard measures are used to help control decentralized organizations. I. Decentralization in organizations A. A decentralized organization does not confine decision-making authority to a few top executives; rather, decision-making authority is spread throughout the organization . The advantages and disadvantages of decentralization are as follows: i. Advantages of decentralization 1. It enables top management to concentrate on strategy, higher-level decision making, and coordinating activities. 2. It acknowledges that lower-level managers have more detailed information about local conditions that enable them to make better operational decisions . 3. It enables lower-level managers to quickly respond to customers . 4. It provides lower-level managers with the decision-making experience they will need when promoted to higher level positions. 1 2 331 5. It often increases motivation , resulting in increased job satisfaction and retention, as well as improved performance. ii. Disadvantages of decentralization 1. Lower-level managers may make decisions without fully understanding the big picture. 2. There may be a lack of coordination among autonomous managers. a. The balanced scorecard can help reduce this problem by communicating a companys strategy throughout the organization. 3. Lower-level managers may have objectives that differ from those of the entire organization. a. This problem can be reduced by designing performance evaluation systems that motivate managers to make decisions that are in the best interests of the company. 4. It may be difficult to effectively spread innovative ideas in a strongly decentralized organization. II. Responsibility accounting A. Responsibility accounting systems link lower-level managers decision-making authority with accountability for the outcomes of those decisions. The term responsibility center is used for any part of an organization whose manager has control over, and is accountable for cost, profit, or investments. The 2 3 4 332 three primary types of responsibility centers are cost centers, profit centers, and investment centers. i. Cost center 1. The manager of a cost center has control over costs , but not over revenue or investment funds. a. Service departments such as accounting, general administration, legal, and personnel are usually classified as cost centers, as are manufacturing facilities ....
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Ch10 - 330 Chapter 10 Lecture Notes Chapter theme: Managers...

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