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Textbook Notes on Chapter 12-ReportingForControl, Chapter 13-Relevant Costs and Decision Making

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University of Toronto St. George
Rotman Commerce
Jacques Bertrand

Decentralization: Benefits 1. top management freed to concentrate on strategy 2. lower-level managers gain decision making experience 3. decision-making authority = job satisfaction 4. lower-level decision = based on better information 5. lower-level managers respond quickly to customers Disadv. 1. lack of coordination among autonomous managers 2. lower-level managers 0.L8L438 -LJ5L.9:70 3. lower-level managers objectives not same as organizations 4. difficult to spread innovative ideas in organization Responsibility Centre: 1. cost centre manager = control over costs NOT revenuesinvestment funds 2. profit centre manager = control over costs and revenues NOT investment funds 3. investment centre manager = control over costs, revenues, and investments in operating assets Segments e.g. geographic regions customer channel Segmented income statements: - traceable FC should be separated from common FC to enable calculation of segment margin - Traceable Costs arises bc existence of particular segment; disappears overtime if segment disappeared - Common Costs arises bc overall operation of Co.; NOT disappear if segment eliminated - Traceable FC of one segment may be common FC of another FORMAT Sales (VC) CM (Traceable FC) Division Margin (Common cost) Net Operating income Segment margin contribution margin traceable FC (of segment) - best gauge of long-run profitability of a segment - % % $%$% $*%$ - Traceable costs can become common if segments are further broken down
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