nchapterstu%2B22%2Bs2010_1_

nchapterstu%2B22%2Bs2010_1_ - 11 Management Control...

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Click to edit Master subtitle style Management Control Systems, Transfer Pricing, and Multinational Considerations Chapter 22 11
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Organizational Structure 22 Arrangement of lines of responsibility within the organization l Business function l Product Line l Geographic Area
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Centralized Operations 33 Centralization achieves economies of scale and increased control over resources. Also more bureaucratic and cumbersome in response to changing conditions.
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Management of Decentralized Operations 44 Corporate management focuses on strategic planning, while lower level management focuses on operating decisions. Decentralization pushes decision-making down the hierarchy in order to make all levels of management more committed to the firm’s goals. l It also allows managers that are closest to the customer to have the flexibility to respond to changing conditions. Difficulty with decentralization is evaluation across units. l Self-interested managers may compromise optimal solution to the firm for personal gain. l Can also lead to duplication of effort and inefficient use of resources.
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Summary of Decentralization: 55 Advantages: l Better information, leading to superior decisions l Faster response to changing circumstances l Increased motivation of managers l Excellent training for top level executives Disadvantages: l Costly duplication of activities l Lack of goal congruence
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Segment Reporting: 66 Minimum segment reporting is required for external reporting by GAAP. We are concerned with segment reporting for internal reporting. l Less concerned with the disclosure of proprietary information in that case. Major decision is how to structure segments for reporting purposes (preparation of reporting is costly so usually choices regarding segments must be made): l By division (i.e., national versus consumer accounts) l By product l By geographic region Usually will choose the segment delineation that matches performance evaluation objectives.
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Segment Costs: 77 Can divide segment costs into fixed and variable and compute segment margins. Common costs – costs incurred for the common benefit of all segments – but should only be allocated to the segments when there is a reasonable allocation basis in which to do so. Avoidable common costs – costs that would be avoidable if the segment were eliminated. Should be allocated to the segment. Becomes complicated when segments become intertwined (or interdependent).
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Digital Communications Company: Example 88 Has two market divisions, three products, and two geographic territories l Two divisions include National Division (serving large national accounts) and the Regional Division (serving smaller regional and local accounts) l Three product lines are fiber optic cable, twisted pair cable, and coaxial cable l Two geographic territories: Atlantic and Pacific
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Digital Communications Company: Example 99 If DCC were using only a single-level segment reporting approach for all three
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nchapterstu%2B22%2Bs2010_1_ - 11 Management Control...

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