Chapter 4 Flashcards
Which Attributes do Information for decision making have to have
Relevant: Important for a decision problem
Trade-offs can be made for:
Accurate: Information should be precise
Timely: Available in time for a decision
What is a typically Criterion when Outsourcing a product
Not all of the allocated fixed costs will be saved if a service or product is outsourced
=> Fixed costs are fixed in total, not on a unit basis, hence, many fixed costs will remain, regardless of a decision to outsource or produce internally
What is a typically Criterion when adding/dropping a product
Some fixed costs may be avoidable in the long-run, but not in the short run
Also be aware of long-term implications: customer visibility, cross selling, supplier relations, etc.
What is a typically Criterion when rejecting or accepting a Special order
Depending on:
With Excess Capacity
Relevant costs will usually be the variable costs associated with the special order
=> Startegy should only be pursued if order has no long-term consequences such as altering regular consumer pricing
Without Excess Capacity
Same as above but opportunity cost of using the firmʼs facilities for the special order are also relevant.
What is the process when allocating Scarce ressources
- Determine which products require a limited ressource in production e.g Labour time / machine hours
- Determine CM of each product
- rank products accordingly and produce first the product who need a scare ressource with the highest CM
What are pros and cons of decentralisation
Pros:
-Lower level managers have more “localˮ information
-Improved reaction time
-Reduces burden on top management
Cons:
-Top management (perhaps) includes better decision makers (more global information, more talent)
-People lower in the hierarchy will serve their own interests
-Try to align their goals to the goals of the company
What is a responsibility centre
A Subunit whose manager is held accountable for specified results; he/she is the “ownerˮ
What kind of responsibilty centres exists
Cost Centre: Unit has control over the incurrence of costs (e.g. Bottling plant of a soft drink company)
Revenue Centre: Responsible for revenue generation (e.g. Ticket sales division of an airline)
Profit Centre: Unit has control over both costs and profits (e.g. College of engineering at a university)
Investment Centre: Responsible for profits and capital invested (e.g. European division of a multinational company)
What is Goal Gongruence
get center managers to strive to achieve the goals set by the company
Management Controls in general?
Result Controls: Based on explicit performance measures
Action Controls: Employee behaviour will be directly guided
Culture Controls: Cooperate culture ensures that employees act in the interest of the organization. Employees may control each other (social pressure).
Personnel Controls: Intrinsic motivation of employees. Employees know how to contribute to the organizational goal and have the ability/resources to do so
Why do Bonuses and Incentives fail?
Bonuses and incentives can fail due to loopholes or unintended social signals
What is a balanced Scorecard
Helps align performance with strategic goals by assembling measures of different aspects that are relevant for a companyʼs
strategy
Encorporarates multiple perspectives (e.g., customer, financial, internal processes, employee readiness) to ensure alignment with company vision and strategy.
What is the best method to distinguish resposibility centres?
Cost Control: main objective is to manage and minimize costs
Revenue Generation: main job is to generate sales or income
Profit: responsible for generating both revenues and managing costs to deliver profit,
Investment Decision-Making: responsible for making decisions about how to invest in assets or resources in addition to profits and costs
Use Decision Tree
Does the center generate revenue?
Yes → Continue to question 2
No → Cost Center
Is the center responsible for both revenue and cost?
Yes → Profit Center
No → Revenue Center
Is the center responsible for asset investments?
Yes → Investment Center
