1-18 Organization of Accounting Department: Centralization or Decentralization The following quotation is from an address made by an officer of the Ford Motor Company: We can all, I think, take pride in the way cost accounting has kept pace with indus- trial development in this country. Tremendous strides have been made during the last quarter of a century, and I'm sure that much more progress will be made in the future. In fact, progress will have to be made if we are to keep the science of cost accounting abreast of the times. The whole of industry is now operating on a different level than we have known before-a higher plateau, on which cost accounting appears in a new light, becomes more and more significant as a factor in business management. It is my experience that the function of cost determination is basic to every other function of a modern business. Cost factors thread their way through every phase of a business and to a large extent influence the makeup of the entire enterprise-its products, its markets, and its methods of operation. We must, of necessity, have rather complex and extensive costing organizations, but the principle according to which they work is the same-finding out what each of the operations costs before it is too late to avoid doing the wrong thing. I am sure you would be interested in knowing that the accounting office at Ford was formerly almost completely centralized and that we have begun to install a decentralized system... It is planned that after the decentralized and the local organizations are prepared to assume the responsibilities involved, these accounting offices will be placed under the direct jurisdiction of the managers of the operations which they serve....

Under the decentralized system, each division has its own complete accounting service.... Each separate activity, such as each assembly plant, has been provided with an accounting office to compile its own internal operating reports for its own use, and to forward the financial statements required by the central office. 1. Under the decentralized organization of the accounting work, would it be better for the controller of the Ford Motor Company to have direct authority or functional authority over the branch and divisional accounting offices? Discuss. 2. Will the decentralized system, in your opinion, make the cost accounting activities more significant in business management? In other words, is the change to a decentralized system in keeping with the trend that is outlined in the first three quoted paragraphs? Explain your answer, stating and illus- trating advantages and disadvantages of the decentralized system in this case. 3. As a newly hired business school graduate in the plant controller's department, would you prefer that the plant controller's line responsibility be to the plant manager or to the company controller? Why? .