Unit-9 - Chapter 12 - Chapter 12 Decentralization and...

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Chapter 12 Decentralization and Performance Evaluation
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Presentation Outline I. The Concept of Decentralization II. Types of Responsibility Centers III. Evaluating Investment Centers with Return on Investment (ROI) IV. The Balanced Scorecard V. Transfer Prices
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I. The Concept of Decentralization A. Decentralization Defined B. Advantages/Disadvantages of Decentralization C. Two Reasons for Evaluating Subunit Performance D. Responsibility Accounting
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A. Decentralization Defined Firms that grant substantial decision making authority to the managers of subunits are referred to as decentralized organizations. Most firms are neither totally centralized nor totally decentralized.
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B. Advantages/Disadvantages of Decentralization Advantages Better information, leading to superior decisions. Faster response to changing circumstances. Increased motivation of managers Excellent training for future top level executives. Disadvantages Costly duplication of activities. Lack of goal congruence.
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C. Two Reasons for Evaluating Subunit Performance Identification of successful areas of operation and areas in need of improvement. Influence over the behavior of managers. Note that it is quite possible to have a good manager and a bad subunit.
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D. Responsibility Accounting Managers should only be held responsible for costs and revenues that they control. In a decentralized organization, costs and revenues are traced to the organizational level where they can be controlled. (See Illustration 12-3 on p. 421)
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II. Types of Responsibility Centers A. Cost Centers B. Profit Centers C. Investment Centers
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A. Cost Centers A cost center is a subunit that has responsibility for controlling costs but not for generating revenues. Most service departments
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Unit-9 - Chapter 12 - Chapter 12 Decentralization and...

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