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 company’s 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?