Chapter 11

Question 1

What are benefits of decentralization?

Answer 1

• Top management freed to concentrate on strategy
• Lower-level decisions often based on better information
• Lower-level managers gain experience in decision making and respond quickly to customers
• Decision making authority leads to job satisfaction

Question 2

What are the disadvantages of decentralization?

Answer 2

• lower-level managers may make decisions w/o seeing the big picture
• may be a lack of coordinations among autonomous managers
• may be difficult to spread innovative ideas in the organization
• lower-level managers objectives may not be those of the organization

Question 3

managers are held responsible for those items — and only those items — that the manager can actually control to a significant extent:
- cost center
- profit center
- investment center

Answer 3

Responsibility accounting

Question 4

Segment whose manager has control over costs, but not over revenues or investment funds

Answer 4

cost center

Question 5

Segment whose manager has control over both costs and revenues, but no control over investments funds

Answer 5

profit center

Question 6

Segment whose manage has control over costs, revenues, and investments in operating assets

Answer 6

investment center

Question 7

What are the criticisms of ROI?

Answer 7

• In absence of balanced scorecard, management may not know how to increase ROI
• Managers often inherit many committed costs over which they have no control
  Managers evaluated on ROI may reject profitable investment opportunities

Question 8

Benefits of residual income

Answer 8

Encourages managers to make profitable investments that would be rejected by managers using ROI