Chapter 10

Question 1

What is decentralization?

Answer 1

When submanagers are given more power

Question 2

What are the benefits of decentralization?

Answer 2

1. Top management freed to concentrate on strategy
2. Lower level managers can respond quickly to customers
3. Lower level decisions often based on better information
4. Lower level managers gain experience in decisions making
5. Increases motivation resulting in increased job satisfaction

Question 3

What are the disadvantages of decentralization?

Answer 3

1. Lower level managers may make decisions without seeing the “big picture”
2. May be a lack of coordination among autonomous managers
3. Lower level manager’s objectives may not be those of the organizations
4. May be difficult to spread innovative ideas in the organization

Question 4

What is the responsibility of the cost center manager?

Answer 4

Control the costs but revenues or investments
Ex. accounting, legal, and personnel

Question 5

What is the responsibility of the profit center manager?

Answer 5

Control both costs and revenues but no investment

Question 6

What is the responsibility of the investment center manager?

Answer 6

Control over cost, revenues, and investments in operating assets.

Question 7

What is the formula for margin?

Answer 7

Margin = NOI / Sales

Question 8

What is the formula for turnover?

Answer 8

Turnover = sales / average operating assets

Question 9

What are the two formulas for ROI?

Answer 9

ROI = NOI / Average Operating Assets

ROI = Margin * Turnover

Question 10

What is the equation for RI?

Answer 10

RI = NOI - (Required rate of return * Average operating Assets)

Question 11

What are the 4 integrated performance measures?

Answer 11

1. Financial
2. Customer
3. Internal Business processes
4. Learning and Growth