Question
1. What is meant by the term decentralized organization? 2. What are the advantages and disadvantages of decentralizing operations? 3. Refer to Why would a
1. What is meant by the term decentralized organization?
2. What are the advantages and disadvantages of decentralizing operations?
3. Refer to Why would a growing college, such as Sierra College, decentralize operations?
4. Refer to How did decentralization at Arthur Andersen contribute to the companys downfall?
5. Describe the three types of responsibility centers presented in the chapter.
6. Describe at least three measures used to evaluate performance of investment center division managers.
7. What are the two weaknesses of using segmented net income to evaluate managers of investment centers? What performance measures would you use to overcome
these weaknesses?
8. What is the primary advantage of using ROI rather than segmented net income or profit margin ratio to evaluate investment center managers?
9. Describe operating profit margin and asset turnover, and explain how each of these ratios can be used to help division managers improve ROI.
10. Describe the potential conflict that can occur between division manager goals and overall company goals when evaluating divisions using ROI.
11. Refer to How did General Electric modify net income to evaluate each segment?
12. Describe residual income (RI), and explain how RI can resolve the conflict between division manager goals and company goals often created by using ROI.
13. Explain the difference between RI and economic value added.
14. Refer to the Game Products, Inc., performance measures presented in. Identify which measures you would recommend to the CEO of Game Products, and explain the
reasoning behind your recommendation.
15. Appendix. Describe the general economic transfer pricing rule. Brief Exercises
16. Evaluating Division Managers at Game Products, Inc. Refer to the dialogue at Game
Products, Inc., presented at the beginning of the chapter. Why does the president
want to give Carla Klesko, the Board Games division manager, a bonus? Does the CFO
agree that Carla deserves a larger bonus than the other division managers? What
performance measures would the CFO like to consider before awarding Carla a larger
bonus?
17. Decentralizing Operations. Burton Electronics produces radios, computers,
and navigation systems. Although all high level decisions are made at
company headquarters by top management, rapid expansion and
increasingly specialized products have caused the company to consider
decentralizing into three divisions. Each division manager would be
responsible for costs, revenues, and investments in assets.
Required:
a. How should the company classify each division, as a cost center, profit
center, or investment center? Explain.
b. What are the potential advantages of decentralizing?
c. What are the potential disadvantages of decentralizing?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started