Chapter 21 - Answer - MANAGEMENT ACCOUNTING - Solutions...

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MANAGEMENT ACCOUNTING - Solutions Manual CHAPTER 21 DECENTRALIZED OPERATIONS AND   SEGMENT REPORTING I. Questions 1. Decentralization means that decision making in an organization isn’t confined to a few top executives, but rather is spread throughout the organization with managers at various levels making key operating decisions relating to their sphere of responsibility. 2. The benefits include: (1) a spreading of decision-making responsibility among managers, thereby relieving top management from day-to-day problem solving and allowing them to focus their time on long-range planning; (2) training in decision making for lower-level managers, thereby preparing them to assume greater responsibility; (3) greater job satisfaction and greater incentive for lower-level managers; (4) better decisions, since decisions are made at the level where the problem is best understood; and (5) a more effective basis for measuring managerial performance through the creation of profit and investment centers. 3. The three business practices are (a) omission of some costs in the assignment process, (b) the use of inappropriate allocation methods, and (c) allocation of common costs to segments. 4. The contribution margin represents the portion of sales revenue remaining after deducting variable expenses. The segment margin represents the margin still remaining after deducting traceable fixed expenses from the contribution margin. Generally speaking, the contribution margin is most useful as a planning tool in the short run, when fixed costs don’t change. The segment margin is most useful as a planning tool in the long run, when fixed costs will be changing, and as a tool for evaluating long-run segment performance. One concept is no more useful to management than the other; the two concepts simply
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This note was uploaded on 07/18/2011 for the course ECON 102 taught by Professor Sadassad during the Spring '11 term at Abant İzzet Baysal University.

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Chapter 21 - Answer - MANAGEMENT ACCOUNTING - Solutions...

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