Advanced A long-established, highly centralized company has grown to the extent that its chief executive, despite having a good supporting team, is finding difficulty in keeping up with the many decisions of import¬ ance in the company.

Consideration is therefore being given to re¬ organizing the company into profit centres. These would be product divisions, headed by a divisional managing director, who would be responsible for all the division’s activities relating to its products.

You are required to explain, in outline:

(a) the types of decision areas that should be transferred to the new divisional managing directors if such a reorganization is to achieve its objectives;

(b) the types of decision areas that might reason¬ ably be retained at company head office;

(c) the management accounting problems that might be expected to arise in introducing effective profit centre control. (20 marks)

CIMA P3 Management Accounting