Chap012 Research Paper

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Phase 12

Part Reporting, Decentralization, and the

Balanced Scorecard

Solutions to Questions


In a decentralized organization,

decision-making authority isn't confined to some

top executives, but rather can be spread during

the organization with lower-level managers and

different employees stimulated to make decisions.


The benefits of decentralization include:

(1) by charging day-to-day problem solver to

lower-level managers, leading management can easily

concentrate on greater issues just like overall

approach; (2) leaving you lower-level managers

to make decisions puts decision-making

power in the hands of those who tend to have

the most detailed and up-to-date information

about daily operations; (3) by eliminating

levels of decision-making and mortgage approvals,

organizations can easily respond quicker to

customers and to modifications in our operating

environment; (4) granting decision-making

power helps coach lower-level managers for

higher-level positions; and (5) empowering

lower-level managers to make decisions can

increase their motivation and work satisfaction.


The supervisor of a cost center features

control over cost, but not earnings or the use of

investment funds. A profit centre manager features

control over the two cost and revenue. A great

investment middle manager provides control over

price and earnings and the usage of investment



A segment is any portion or activity of an

firm about which usually a director seeks cost,

revenue, or profit info. Examples of sections

include departments, operations, sales

territories, divisions, and catalog.


Underneath the contribution strategy, costs

happen to be assigned to a segment in the event that and only in the event the

costs happen to be traceable towards the segment (i. e., can

be avoided if the segment had been eliminated).

Common costs aren't allocated to portions

under the contribution approach.


A traceable cost of a segment is known as a cost

that arises especially because of the living

of that section. If the segment were eliminated,

the cost could disappear. A common cost, simply by

contrast, is known as a cost that supports multiple

segment, but is not traceable in whole or simply

to any among the segments. In case the departments

of the company happen to be treated because segments, in that case

examples of the traceable costs of a section

would range from the salary of the department's

supervisor, depreciation of machines used

exclusively by the department, plus the costs of

supplies utilized by the office. Examples of

В© The McGraw-Hill Companies, Incorporation., 2010. Most rights reserved. 118

Managerial Accounting, thirteenth Edition

common costs would include the wage of the

general counsel of the entire company, the lease contract

cost of the headquarters building, corporate

image advertising, and periodic depreciation of

equipment shared by simply several departments.

12-10 Margin refers to exactely net

functioning income to perform sales. Turnover refers

to the ratio of total sales to typical operating

assets. The product of the two quantities is the



The contribution perimeter is the difference

among sales income and varying expenses.

The segment perimeter is the volume remaining

following deducting traceable fixed expenses from

the contribution margin. The contribution margin

is advantageous as a organizing tool for most decisions,

especially those by which fixed costs don't

change. The part margin pays to in

assessing the overall earnings of a section.

12-11 Residual income is the net operating

cash flow an investment centre earns over a

company's bare minimum required level of return on

working assets.


If common costs were allocated to

sections, then the costs of sectors would be

overstated and their margins would be

modest. As a consequence, some

segments may well appear to be unprofitable and

managers may be convinced to eliminate them. If

a segment had been eliminated as a result of

existence of...